Old Age Insecurity?

CaledonInst.org – Publications
February 2012.   Ken Battle, Sherri Torjman and Michael Mendelson

The controversy over raising the age of entitlement for Old Age Security from 65 to 67 is taking attention away from alternative possible reforms of that vital program, and of Canada’s pension system generally.  The allegation that Old Age Security will be unsustainable in future is more a political than a policy judgement, and the substantive evidence does not support it.

Low-income seniors will be hardest hit by increasing the age of entitlement for Old Age Security, since they rely on that program for most of their income and they have a lower lifespan than middle-  and upper-income Canadians.  If the federal government goes ahead with that ill-considered change, then at least it should provide an income benefit to poor seniors aged 65 and 66 so that they do not have to keep working or remain on welfare for two more years.  The mechanism for this already exists, in the form of an extension of the Allowance (which is part of the Old Age Security program).  The federal government could pay for this enhancement out of the billions it will save by raising the age of entitlement to 67.

The Caledon report puts forward other possible changes for public debate, including:

  • An ‘actuarially adjusted’ Old Age Security, where the amount of benefit would vary with the age that beneficiaries choose to begin receiving their payments; the Canada and Quebec Pension Plans have that feature.

  • Lowering the clawback on the basic Old Age Security pension – either by reducing the income threshold or raising the reduction rate or both – would bring more seniors into the income test and reap more savings for the federal government – part of which could go to paying for increases to benefits we have proposed for the elderly poor.  But at least this would be a progressive measure, affecting better-off seniors and not touching the majority of seniors who have low or average incomes.  However, care must be taken not to lower the clawback so far that it digs into the large group of middle-income seniors for whom Old Age Security is a significant source of income.  The income test for couples should be based on their combined income, not their individual income as at present. One thing that should not be changed is indexation of the income test to the full cost of living.

  • Combining Old Age Security, the Guaranteed Income Supplement, the age credit and the pension income credit into a single income-tested program with a progressive design.

  • Scrapping the costly and regressive pension income splitting tax expenditure and using the savings to bolster the Guaranteed Income Supplement.

The focus on Old Age Security is important, but it threatens to deflect attention from the key to pension reform – boosting the Canada and Quebec Pension Plans.

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