OTTAWA – Canadians younger than 54-years-old will have to wait longer to receive retirement benefits, as the federal government introduced a budget designed to bring generational change.
Finance Minister Jim Flaherty confirmed that the government would gradually roll back the age of eligibility for Old Age Security and the Guaranteed Income Supplement to 67 from 65 – a move Prime Minister Stephen Harper first hinted at in January while in Davos, Switzerland.
The changes mean people born between April 1, 1958 and January 31, 1962 will become eligible to receive their OAS benefits at some point between the age of 65 and 67, depending on their birth date.
The six-year rollout starts in April 2023 and Canadians born in 1958 will be the first to feel the changes, waiting an additional one to five months before getting their first OAS payment.
Source: Department of Finance, published in the Economic Action Plan 2012
By the end of the rollout, those born after January 1962 will be waiting the full two years to get their benefits.
The changes come as part of a budget that focuses on the long-game, introducing $5.2 billion in spending cuts and targeted spending in job-creating activities like innovation and resource development.
“In this budget, our government is looking ahead not only over the next few years, but also over the next generation,” Flaherty said in the budget speech. “The reforms we present today are substantial, responsible and necessary. They will ensure that all across government are focused on enabling and sustaining Canada’s long-term economic growth.”
The Conservatives say changing the OAS system is key to keeping social programs sustainable over the long-term.
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OAS benefits are the government’s single largest expenditure, comprising 13 per cent of total spending. It’s a benefit that has become outdated as Canadians are living longer and there are a higher proportion of seniors to working people, according to the Conservatives.
Sonya Gulati of TD Economics said the changes reflect where Canada will be in the future.
“(The change) is going to be something that is about long-term sustainability, but also reflecting the economic times that we’re going to be in, in 10, 15, 20 years from now, when you have those demographic challenges and labour force,” said Gulati.
Critics of the plan dispute the argument the retirement system is unsustainable – a view supported by a recent report from Parliamentary Budget Officer Kevin Page.
“These are unnecessary changes driving by political considerations, not fiscal considerations,” said David Macdonald, an economist at the Canadian Centre for Policy Alternatives.
Macdonald said the OAS has been a mainstay for Canadians, and that the changes are just going to drive up the number of seniors in poverty.
Other budget measures to ease the tension of Canada’s changing demographics include incentives to keep working and changes to survivor benefits.
Canadians can delay receiving their OAS pensions starting next year in order to receive a higher pension later, a measure that could encourage people to continue working. A five-year delay could mean $2,000 more in monthly payments.
The budget will see people collecting an OAS survivor allowance will also have to wait longer to collect the benefit as the government increases the eligibility ages from 60-64 to 62-66 starting in April 2023.
A final measure change to OAS will make enrollment automatic, eliminating the need for seniors to apply for the benefit.
Promising to hold the government accountable for a budget that delivered reckless cuts, NDP leader Tom Mulcair attacked the Conservatives for its new pension policy.
“The Conservatives ran an entire election campaign without saying a word to Canadians about their plans to cut OAS or health transfers,” Mulcair said. “Clearly Mr. Harper is not a man of his word.”
The Liberals said the changes pit generations against each other.
“Unfortunately, this budget has no real measures to grow jobs, and address youth unemployment and Canada’s skills shortage,” said Liberal leader Bob Rae. “Moreover, it will worsen income inequality by increasing the qualifying age for the Old Age Security from 65 to 67, and by failing to make tax credits refundable for family caregivers, volunteer firefighters, children’s activities and the disability tax credit.”
Public servants and politicians will also be feeling some pension pain of their own as part of the budget’s cost-cutting measures.
Public servants joining the bureaucracy in 2013 or later will no longer be allowed to retire at 55-years-old, but will have to wait until they turn 65.
It’s a change that could have been apocalyptic, if the Conservatives had implemented it retroactively, according to Ian Lee an expert in financial policy at Carleton University’s Sprott School of Business.
“He’s done something very radical, while simultaneously protecting every living, breathing public servant, they won’t be rioting on Parliament Hill,” Lee said.
“It’s high time,” Catherine Swift of the Canadian Federation of Independent Businesses said of the changes. “If you are going to increase OAS eligibility for everyone else to 67, you had better darn well do something on the government side.”
Public service pension plan contributions will also be changed to see employees cover 50 per cent of the cost, instead of the 40 per cent they contribute now.
Parliamentarians will also be expected to pay a bigger share of their pension plan next year, but the budget was scant on details aside from saying any changes to the age of eligibility won’t come into effect until after the next election.
Within hours after Flaherty had tabled the budget, a senior government official provided more details, saying that by 2016 parliamentarians would be responsible for covering half the cost of their pension contributions. All other changes to MP pensions will be included in legislation to be tabled in the fall.
“They have to go at their pensions and change the way they are constructed, so they can have any authority to go after those in the rank-and-file public sector,” Swift said.
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