OTTAWA – Anyone younger than age 54 will have some redrafting to do when it comes to retirement planning.
The federal government has raised the eligible age for old age security to 67, postponing existing benefits for two years.
The widely expected change to OAS will have a trickle-down effect on people’s financial plans. It will affect the guaranteed income supplement, veterans’ benefits, aboriginal benefits, survivors’ allowances and especially the way many companies have set up their employees’ pension plans.
But the changes won’t kick in right away.
Ottawa will start making the adjustments in 2023, and phase them in gradually over six years.
That means anyone over 54 won’t be affected. People in their early 50s will see moderate changes. And people under 50 will feel the full force of the new policy.
The government is also allowing some flexibility in the new retirement system, by allowing workers to voluntarily defer their government benefits for up to five years and collect higher amounts when they actually retire. This change comes into effect next year.
Someone who does not want to retire at 67 can keep working for a few extra years and eventually collect a slightly bigger old age security benefit – imitating the way the Canada Pension Plan already functions.
The new policy comes with a commitment to compensate provincial governments for any extra costs that may arise. But it does not contain any specific provisions to deal with low-income seniors who will see two years’ of benefits disappear.
“As many have said before, these changes will have significant impact on low- and modest-income individuals,” said Tyler Meredith, research director at the Institute for Research in Public Policy.
Since lower-income Canadians have significantly shorter life spans than higher-income Canadians, they carry disproportionately more of the loss in benefits, Meredith said.
About 98 per cent of Canadians receive OAS, and a third of those also receive the income supplement. The benefit system has been the key reason why poverty among seniors has diminished markedly over the last three decades.
By delaying the changes a decade, the government is provoking inter-generational conflict, pitting the young against the older generation, said seniors’ advocate Susan Eng of CARP.
“They’re saying ‘let’s do it for the children.’ But it’s the children who get hurt,” Eng said in an interview.
The Conservatives stormed ahead with the changes without listening to the many policy options that could have saved the government money without exacerbating poverty or forcing the young to shoulder the burden, she said.
The only bright side, she added, is that the government has given opponents 11 years to try to change Ottawa’s direction.
The goal of the change is two-fold: to encourage people to stay in the workforce longer, and to save the government billions of dollars.
When fully implemented, officials estimate, Ottawa may save almost $11 billion a year, although there was no documentation to break down the figure.
“In this budget our government is looking ahead not only over the next few years but also over the next generation,” Finance Minister Jim Flaherty said.
“This gradual approach will enable younger Canadians to plan ahead with confidence.”
The changes were signalled by Prime Minister Stephen Harper in January, when he said Canada’s social programs had to scale back if the country’s finances were to remain sustainable over the long term.
His targeting of old age security was greeted with angst within his own caucus, and push-back from experts who argued repeatedly that retirement benefits are sustainable in their current form.
But the government says many other industrialized countries are raising their age of entitlement, and Canada should too – especially since people are living longer and healthier lives.
“I don’t think it’s a really unreasonable request. I mean, governments around the world are doing this,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
“As an economist, I have no problem with that. We actually want people to stay in the labour market longer.”
The provinces have expressed some concern that they would be stuck with a big welfare bill for the two years that low-income seniors are no longer able to collect old age security and the guaranteed income supplement.
The federal government’s commitment may alleviate their fears somewhat.
“The government will compensate provinces and territories for net additional costs they face resulting from the increase in the age of eligibility of OAS benefits,” the main budget document states.
Still, the commitment throws discussions about compensation into the political arena, where federal-provincial relations are tense and where the federal government has a spotty record of reimbursing provincial governments to the standard they demand, says Meredith.
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