Unless you have been ignoring the media for that last few days you are likely aware of the buzz going around the media about the federal government plan to reform the Old Age Security (OAS) program. While the details of the reform is outstanding the current thinking is they will likely go with an increase the age requirement from 65 to 67, but in reality they have other options too like increasing the claw back provisions.
First a little history, what is Old Age Security? Well despite being called a pension, it really isn’t one at all. First off there is no money saved for this program despite being around since 1952. It is paid for entirely out of the General Revenue Fund by the federal government in the current year. Thus our 2010 tax dollars paid out our 2010 OAS benefits that year. The programs needs an overhaul…badly. How so? Well there are a few interesting facts like the taxpayer to retiree ratio is currently 4 taxpayers to 1 retiree, which will decline to 2 taxpayers to 1 retiree by 2030. Add in the program is expected to cost $108 billion by 2030 up from $36.5 billion in 2010. So if you have three times the cost and half that taxpayers that means you need to increase taxes or cut service by six times today’s payments just to fund this program. I don’t know about you, but I’m not prepared to pay that much more tax just to keep the status quo.
The other thing people tend to forget is what is the program supposed to do? While some people do think of it as a pension plan I personally tend to think of it as a social safety net. It provides a basic income to seniors while some additional funds for low income people with the GIS or Allowance programs.
So what will changing the age requirement for OAS do? It delays the problem some what and reduces a little bit of the cost, but if you really want to have significant cost savings the government is going to have to do more. So what is a likely target, in my mind, if you want to be fair about it you start by increasing the claw back provisions. This way the basic function of the program can stay in place while we take the extra money out the hands of retirees that need it the least. By the way, the claw back starts when your income hits about $67,600 and by about $109,000 you have to pay all of it back. I don’t know about you, but if your making over $75,000 a year in retirement, I don’t really think you need the OAS.
So how would you deal with this huge cost increase to the OAS program? Raise the age, increase the claw back or something else? For US readers, the problem is similar for the Social Security program, so feel free to rant or make suggestions.