As was widely expected, today’s federal budget announcement included a plan to increase Old Age Security (OAS) eligibility for Canadians from the current age of 65 to 67.
Under the changes, OAS eligibility will increase gradually between 2023 and 2029. Canadians born on March 31, 1958, or earlier will not be affected. Those born on or after Feb. 1, 1962, will have an eligibility age of 67, while those born between April 1, 1958, and Jan. 31, 1962, will be part of the phase-in period and will have an eligibility age between 65 and 67.
Chris Brown, partner at Spectrum HR Law and chair of the Association of Canadian Pension Management, says the changes strike an appropriate balance between the need to address OAS sustainability and the desire to give pension plan sponsors and working Canadians enough time to adjust to the new reality.
“Clearly, the government has decided that changes needed to be made. But I think they’ve been realistic by giving people who aren’t at retirement age a reasonable period of time to factor those changes in to their retirement planning,” he says. “It’ll give us an opportunity to evaluate the impact on private sector plans and for the sponsors of those plans to understand how these changes are going to impact them.”
In addition, those currently approaching the current OAS eligibility age of 65 will have the option of deferring their payments for up to five years, starting on July 1, 2013. Effectively, this would increase the maximum annual OAS payments for those who choose to defer—someone who waited until age 70 to draw OAS, for example, would receive $8,814 annually instead of $6,481.
Ian Edelist, a principal at Eckler, says the only people he thinks would choose to defer OAS payments would be working Canadians for whom adding OAS payments at age 65 could bump them into a higher tax bracket.
But Edelist does see the OAS eligibility increase as a step toward changing the mindset of Canadians around work and retirement. “They’re incenting people to work later—you have the increase in OAS eligibility, you have the deferral of OAS, and I think we’re going to see more changes to try and drive Canadians to work later. If you think about it, we’re starting employment later, we’re living longer, so there has to be an equation where you’re working longer to support your longer lifetime and retirement.”
Ian Markham, Canadian retirement innovation leader with Towers Watson, agrees, adding that he thinks employers will ramp up efforts to encourage employees to save. “They may take advantage of the psychology of Canadians in viewing retirement as something that’s no longer going to happen at age 65.”
Markham says that those who are currently around age 50 and will be among the first to have their OAS eligibility increased to 67 will recognize that the two years of OAS eligibility they’ll miss out on is money they will have to start putting away now.
“It’s all very well to say that people will get used to the idea of deferring their retirement [to age 67]. But not everyone will have that luxury. I think we’re going to find a bigger push by Canadians who are going to be affected by this to start saving between $500 and $1,000 extra each year in order to make it up.”
While the changes announced today will mean that Canadians will have to wait longer to collect OAS, they may not have to complete as much paperwork to do so. The budget announced a “proactive enrollment regime,” to be phased in between 2013 and 2015, that will automatically enrol eligible Canadians for OAS and the Guaranteed Income Supplement.