Nothing can bring out panic in Western nations faster, and Canada is obviously no exception, than to threaten entitlements. For example, during the past twenty-four hours, following Prime Minister Harper’s speech in Davos Switzerland, when he mentioned that government pension reform was going to be necessary, a lot of people of all political persuasions have been up in arms. What some Canadians don’t seem to know is that for most of the history of the Old Age Security, eligibility was actually age 70 and only dropped to age 65 in 1970.
Above, the PM in Davos.
So, why are some people so upset? Is it that the OAS “entitlement” is so untouchable, we can’t face reality? Is that not what we condemned the Greeks and other Europeans for not so long ago? Remember when the Greeks were rioting in the streets over their lost entitlements, we bloggers scratched our heads wondering what was it about affordability or sustainability they didn’t undersand? Well, welcome to our own entitlement awakening.
But, think about it. In 2011, the first year of the baby boom generation — those born in 1946 – turned sixty-five. Meaning, that for several decades into the future, there are going to be more people retired than working and paying taxes. So, how can we expect our grandchildren and great-granchilden to have a lower standard of living than we had simply because they must pick up the tab for one of the most privileged generations in Canadian history? Well, in my opinion, we shouldn’t.
Remember too, that provinces offer social assistance to seniors in need. Meaning, this is Canada. No senior is going to starve if the OAS age of eligibility is increased. Interesting fact, as I said earlier, age 70 was the age of eligibility for most of the history of the OAS, beginning as early as 1927. Here, for example is the Ontario plan, which no doubt would have to be adapted if the OAS age of eligibility increased.
Here (for a PDF file on the History of Pensions in Canada) and here are some quick facts:
(1) The first Old Age Pension Act was passed in 1927 by the William Lyon Mackenzie King Liberal government for seniors who were 70 years of age or older and had resided in Canada for a minimum of 20 years. It was also means tested meaning eligibility was based on financial need. Now, those eligibility criteria would have been very tough. I mean, twenty years in Canada would have eliminated most of the seniors population at that time.
(2) In 1951, under Liberal PM Louis St. Laurent, the Old Age Pension Act was replaced with the Old Age Security Act. Still for seniors aged 70 or older, it became universal in nature in that financial need no longer had to be established. It isn’t clear if the 20 years in Canada expectation still applied or if it was changed to ten years, as it is today.
(3) “From 1927, Canada had a system of means-tested pensions in effect for British subjects 70 and older who met residence requirements. Not until 1952 was this superseded by a universal pension. Beginning in 1965 the age of eligibility for a universal pension was gradually lowered, reaching 65 years in 1970.” (Source). In other words, the eligibility age of 65 became effective in 1970 — not that long ago.
(4) The Guaranteed Income Supplement, which is income tested, was insituted in 1967, under the direction of Liberal Prime Minister Lester Pearson.
(5) In 1989, under the Brian Mulroney Progressive Conservative government, a clawback of OAS was instituted based on financial need, with the OAS being reduced by fifteen cents for every dollar that a senior earned over the threshold of $53,215.00. The threshold in 2012 is $66,335.00 – certainly affluence by retirement standards.
(6) In 1996, the Liberal government of Jean Chretien removed OAS universality. What that meant was that the amount of OAS a senior received was pre-determined by the government – with the result that some seniors receive less than others while those who are more affluent receive nothing at all — which remains the current practice.
The crux of the matter is, then, that all things in life change including our entitlements. And, even though I would personally be affected by a change in age of eligibility for the OAS, I know it is going to be the right thing to do.
Endnote: For other blog posts and excellent discussions on this topic, check out Iceman, Blue Like You and Dr. Roy. C/P Jack’s Newswatch.
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Hi Sandy,
Chretien took away the family allowance from the baby boomers while we were raising our families. He tried to apply the same standards to pensions at the time.
Baby boomers coped with the new baby bonus rules with out a whimper. At the same time seniors were demonstrating on parliament hill to treat all pensioners the same regardless of income.
I believe the baby boomers will cope with changes to the pension plan just as we did with the family allowance 20 years ago.
Ah yes Fay, I remember that re the baby bonus. My daughter had a baby and two toddlers and it was quite a hit. Yet, how is it that a Liberal PM like Chretien can simply cancel the baby bonus and institute a means tests to decide who gets OAS and you hear very little about the issues in the media? If the Conservatives do make changes, I sure hope they plan their communications plan carefully and remind all Canadians of the details I found for this post. They might also remind Canadians about the cancellation of the baby bonus and the now Universal Child Care Benefit.
Governments have to make long-term decisions like households do. It’s crazy to ignore fiscal reality.
O/T but it seems to me that the entitlement attitude or expectation seems to be a relatively new phenomenon. In fact, it was the first thing I noticed when I started to work for the PC MPP back in 1995. In Ontario that summer, welfare rates were dropped by 21%? The telephone in the Constituency Office ran off the hook. I had women screaming at me, single parents who were not receving any child support or even trying to get any, or their spouses were in jail, that it was their RIGHT to stay home with their kids until they were in school — collecting what was called then “mothers allowance.”
Yet, when I tried to explain that it wasn’t their “right” to do that if they were able bodied and able to work because thousands of young families were both working to make ends meet and paying taxes so they — those on social assistace — could stay home.
The result? They would hang up on me because they just didn’t get it.
After WWII my parents separated. In the late 40s and early 50s, there was no social assistance. Since my dad’s child support was not reliable, my mother had to work two jobs — in a nursing home during the day and as a waitress in the evening. Neighbours helped take care of my brother and me. Is it better the way it is today? Yes, for sure. But, when people feel all our benefits are their rights, something is very wrong.
CPP we pay into. OAS we don’t.
Not sure what the difference is between points 5 & 6
Big difference Cynthia. In Item 5: Following Mulroney’s changes, every senior received the same monthly OAS cheque each and every month regardless of other income and were only clawed back at the time they did their annual taxes.
Whereas in Item 6: Chretien’s changes meant the gov’t decided ahead of time what amount a person was going to receive. Meaning, monthly OAS payments are different depending on the taxable income of the year before. As a result, some get $500.00 a month, some $100.00 a month and some never see a payment. As such, it can be very unfair. For example, if someone retires at the end of December in any given year, that taxable year — their last full-time working year — would likely mean they would not qualify for an OAS pension until they submit their tax returns a full year later after a year of receiving only retirement income. In fact, I know of many such cases. At least if you were clawed back, your income was up-to-date.
So, at the moment, the best time to retire is when you are 64 and in the months of February or March before tax time. Then, a year later when you are 65, you will have a better indication of retirement income.
Hope that clarifies things.
Thanks, my payout has remained the same since I started receiving it. The clawback doesn’t start until $66,000, individual income, not total family income either, so it will never affect me cos I’ll never see that amount. I guess it would only fluctuate if your income fluctuates.
Actually Oxygentax, that is not all Chretien’s change did. It took two years before I received my full OAS because my first year was based on my last year working — which as I explained to Cynthia, was around the maximum amount. However, that wasn’t fair because I had never been tenure stream so had no public sector pension, just my self-managed RRIF. Therein is the difference. Once you get going, its fine. But, that first year is unfair because, of course, your last year employed is going to be more than when you are retired, at least for us average middle class folks anyway.
So, if you retire from a full time job when you are sixty-four, you are fine because your most recent tax forms will indicate your lower income.
Cynthia and Oxygentax:
I guess I am not explaining myself very well. There isn’t actually a clawback anymore in that income over $66,000 doesn’t get clawed back on your income tax form. It get’s clawed back at the time the public servants do your tax form right at the source.
So, let’s say you turn 65 in March of this year, you retire on your birthday and then apply for OAS. You do your tax form a month later. Well, your 2012 OAS will be based on your full-time income from 2011 because that is the most recent tax information the government has. Then, in April of 2012, they find out your 2012 income was way less than the $66,000 and they adjust your OAS. There is no retroactive even though you didn’t earn anywhere near the $66,000 in 2012.
Re the change to the way the clawback happens — read this comment by Mary T at Blue Like You. She is a tax expert and likely explained things better than I did. However, her mention of how things penalizes farmers when they sell their farms, the same is true for those who make more than $66,000 in the last year they are employed. They are penalized that for their year retired, no matter how much or how little their retirement income.
Personally, I would rather go back to the old way and if anyone is over the allowed amount, they can pay it back with their annual income tax submission. That would be especially helpful now that there is income splitting.
Note — for some reason this blog template/theme does not show links on my comment replies. If there is a dark space, just click on it as the link is actually there.
Sandy – just a clarification.
All Chretien et al did was start deducting what you repaid in clawback as income tax withheld starting in July of the year. For example, if you were clawed back for $2400 in 2010, then starting July of 2011, they would take $200/month as an income tax deduction.
Every senior still gets the same amount, it’s just that those who were clawed back have a mandatory tax deduction.
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