Globe & Mail: It’s time to reform Old Age Security - and a scathing auditor’s report confirms it

Originally published in The Globe & Mail on December 7, 2024

Bureaucrats have no idea whether Ottawa’s most expensive program – Old Age Security – is meeting its objectives. That is the scathing conclusion from Karen Horgan, Canada’s Auditor-General, this week.

Her office found that Employment and Social Development Canada (ESDC), which is responsible for the program, was not able to help government ensure OAS meets seniors’ needs because “the department collected information and data about seniors, but did not analyze it.”

This stunning finding leads to a number of critical questions that must be answered before the next budget. What are the objectives of the OAS program? By what metrics will Ottawa judge these objectives are being met? And how will we pay to achieve those objectives, given the cost of OAS, as currently designed, is increasing far more than any other federal program?

Answers can be found in the Auditor-General’s judgement that ESDC has not updated its thinking about what purpose OAS serves since it was created in 1952.

OAS delivered $40 a month back then, or $443 in today’s currency. Residents were eligible for this payment when they reached age 70, which was above the average life expectancy of 69 years at that time.

Today, Canadians are eligible for OAS at age 65, when the average life expectancy is 83 years. Over the years, the monthly payment was increased faster than inflation, making it now $728 for seniors 65 to 74, and $800 for those 75 and older.

These OAS changes occurred alongside a number of other policies that expanded Canada’s retirement system. The introduction of the Canada Pension Plan (CPP) in 1966 is especially notable, as is the Guaranteed Income Supplement, which was added to the OAS in 1967 to reduce poverty levels among seniors. So are a number of generous tax shelters for retirement income, including the Age and Pension Income tax credits created in 1987, and income-splitting in 2006.

Together, these policies are working relatively well to reduce seniors’ poverty levels. According to Canada’s official measure, 6 per cent of seniors are poor, compared with 10 per cent of children and 11 per cent of people 18 to 64.

But when Ottawa is spending $81-billion on OAS this year, and billions more on tax shelters for retirees, there is absolutely no reason for any senior to be poor.

My last column helps make this point. Retired couples with six-figure household incomes will often receive more than $20,000 from CPP and another $19,000 from OAS. Their receipt of CPP is perfectly reasonable, because governments adapted that program decades ago, so Canadians prepay into CPP in proportion to what they will receive in retirement.

But OAS has never been a prepay system. It’s a government subsidy paid to whomever is eligible, which presently includes individuals with incomes over $140,000, and couples who have nearly $300,000.

This level of subsidy for affluent retirees is a perverse outcome of the ESDC failure to adapt OAS in response to other pension policy, and the rapid increase in housing wealth enjoyed by many seniors. We should now make up for lost time, because we live in an era when some people have real affordability concerns.

Since the CPP was designed to replace retirement income regardless of one’s affluence, OAS no longer needs to deliver taxpayer subsidies for rich and poor retirees alike.

That’s why I’m working with Generation Squeeze to convince the Trudeau Liberals, and opposition parties, to refine the OAS threshold after which the subsidy is slowly clawed back. We recommend shifting the threshold from $90,000 of individual income to $100,000 of household income – an idea supported by three-quarters of Canadians, including retirees.

This would reduce after-tax earnings by $3,000 on average for 1.5 million seniors in households with six-figure incomes, saving Ottawa $6.8-billion next year.

Forty per cent of these savings could be used to add $5,000 annually for every one of the half million poor seniors, virtually eliminating poverty among retirees.

Twenty per cent could increase OAS by $250 annually for the 5.5 million retirees who have individual incomes under $50,000. That’s better than including retirees in Mr. Trudeau’s one-time $250 holiday cash give away, which is already wasteful enough by borrowing money from younger and future generations to cut cheques for high earners with incomes up to $150,000.

The remaining 40 per cent, about $2.8-billion, could be reallocated to other government obligations. More defence spending, border protection, fighting climate change and helping younger Canadians with housing, child care and post-secondary education are all worthy options.

 


Paul KershawDr. Paul Kershaw is Founder, Lead Researcher & Executive Chair of Generation Squeeze. He is a policy professor in the UBC School of Population and Public Health, and Director of the UBC Masters of Public Health program.

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