Recent changes to the federal Old Age Security (OAS) program, including two one-time extra payments of $500, and a plan to increase the program’s payout by 10 per cent for those 75 and over, shouldn’t impact Ottawa’s ability to sustain the program.

So says Sheila Block, chief economist for the Canadian Centre for Policy Alternatives (CCPA), Ontario branch.

On the phone to Save with SPP from Toronto, Block notes that unlike the Canada Pension Plan (CPP), OAS isn’t funding through contributions and investment returns like a private pension plan – it’s a government program, paid for through taxation. So, she says, if planned changes go ahead there is “absolutely… the capacity for the government to afford it.”

While OAS is a fairly modest benefit, currently about $615.37 per month maximum, Block notes that it has an important feature – it is indexed, meaning that it is increased to reflect inflation every year.

“This acknowledges that a lot of retirees’ pension plans are not indexed,” she explains, or that they are living on savings which diminish as they age. An indexed benefit retains its value over time.

Many people who lack a workplace pension and/or retirement savings will receive not only the OAS, but also the Guaranteed Income Supplement (GIS), which is also a government retirement income program. OAS and GIS together provide about $16,000 a year, which is helpful in fighting poverty among those with lower incomes, she explains.

“OAS was not designed to support people on its own,” she explains. “And the GIS is an anti-poverty measure that supplements OAS. As we see fewer people with defined benefit pensions or adequate retirement savings, there is an argument to increase OAS, for sure.” But, she reiterates, the OAS is more of a supplement than it is a program designed to provide full support.

As well, she notes, many getting OAS and GIS also get some or all of the CPP’s benefits.

Save with SPP noted that much is made about the OAS clawback in retirement-related media reports. But, Block notes, in reality, the threshold for clawbacks is quite high. The OAS “recovery tax” begins if an individual’s income is more than about $78,000 per year, and you become ineligible for OAS if your income exceeds about $126,000, she says.

A 2012 research paper by CCPA’s Monica Townson, which made the case then that OAS was sustainable, noted that only about six per cent of OAS payments were clawed back.

Citing data from the Canada Revenue Agency, Block notes that today, only about 4.4 per cent of OAS payments are “recovered” through the recovery tax.

We thank Sheila Block for taking the time to talk with Save with SPP.

Retirement security has traditionally depended on three pillars – government programs, like CPP and OAS, personal savings, and workplace retirement programs. If you don’t have a workplace pension plan, you’re effectively shouldering two of those pillars on your own.

A program that may be of interest is the Saskatchewan Pension Plan. This is an open defined contribution program with a voluntary contribution rate. You can contribute up to $6,600 per year, and can transfer up to $10,000 from your registered retirement savings plan to SPP. They’ll invest the contributions for you, and when it’s time to retire, can help you convert your savings to income, including via lifetime annuity options. Check them out today!

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