Canada’s old age security: Parents party, kids pay
Why aren’t we saving for retirement instead of putting it on our kids?
IThe OAS was brought in in 1952, at a time when most seniors were poor. That’s no longer the case, and OAS payments are going to some seniors who have taxable earnings that are well above those of an average Canadian still in the workforce.
’ve never been on welfare, but I’m looking forward to it now. Not welfare in the sense it’s usually known — the miserly stipend the provincial government hands out to people who have exhausted all of their other resources.
No, I’m looking forward to getting the welfare Ottawa sends out to the majority of seniors whether they need it or not.
It’s not called welfare or social assistance. It’s called Old Age Security. It’s the pension you don’t have to work for or save for to earn. If you are a Canadian who meets the minimal residency requirements, all you have to do is get old.
For seniors who get virtually no other income, the federal government also offers the Guaranteed Income Supplement, which is currently a maximum of $ 732 a month on top of the maximum $ 540 a month OAS payment.
The aspect that separates the OAS/ GIS from the Canada Pension Plan, workplace pension plans and personal retirement savings plans, is that it is entirely paid for by taxpayers in the year it is paid out.
So when I start getting the OAS — I probably will not qualify for the GIS, at least I hope I won’t be that poor — it will come out of the pockets of the people still working or who have other sources of taxable income.
As the federal government emphasized this year when it announced it was raising the age at which Canadians can start collecting their OAS/ GIS payments from 65 to 67, the relative number of people working is declining compared to the number of Canadians who will be depending on their efforts. By the time the change kicks in in 2023, the ratio of workers to seniors will have fallen from about 4.5: 1 to 3.3: 1.
Pushing back the age of retirement will ease the pressure on the workforce of the future, but it doesn’t address what I believe is a fundamental question: Why are we asking our children to pay for our retirement rather than saving for it ourselves from our own earnings?
In terms of a burden on future taxpayers, the OAS system is no different than the national debt. Based on this year’s budget, it’s worse. For the 2012/ 13 fiscal year, the Conservative government has budgeted $ 30.8 billion for servicing the national debt and $ 40.4 billion for elderly benefits. About 80 per cent of those benefits — $ 32 billion — are for OAS.
The OAS was brought in in 1952, at a time when most seniors were poor. That’s no longer the case, and OAS payments are going to some seniors who have taxable earnings that are well above those of an average Canadian still in the workforce.
In 2011, the average Canadian worker earned $ 45,500. Seniors can have a net income of just under $ 70,000 and still get the full OAS benefit of $ 6,480. After that, it starts getting taxed back but a senior who has twice the taxable income of an average worker will still be getting a boost. It isn’t completely taxed away until a pensioner’s net income reaches $ 112,772, a lofty level that most working Canadians will never achieve.
If we think of the OAS as a tax burden passed on to the next generation, it puts the debate over pension reform into a different context. Government and workplace pension plans and personal retirement savings plans are all vehicles that people who are still working use to prepare for their retirement.
People who either can’t afford to save, or who chose not to, will all be depending on the next generation to pick up the tab.
The same dynamic is at work on a national basis. If we as a country choose not to invest in the retirement of current workers, either with an enhanced Canada Pension Plan or by making workplace plans mandatory, we are passing this burden on to the next generation.
In that context, the argument that we can’t afford to enhance pensions plans because it would be too much of a drag on the economy will not be all that persuasive 20 years hence. We pay now or they pay later.