Retirees of the future, prepare to save more if you want to retire at age 65.
The federal budget confirms that the age of eligibility to receive Old Age Security will rise to 67 from 65. The change will be gradually phased in between April, 2023, and January, 2029, which means that current retirees and people aged 54 or older as of March 31 will not be affected.
Everyone else will have two options: Stay in the workforce until 67, or try to save enough to cover two years of OAS and retire at 65. In a country where there’s perpetual angst about insufficient retirement savings, this is not a trivial thing.
Conservative budgets in recent years have typically offered a new tax credit or two aimed at families, but not this time. The one measure with Main Street appeal is a big increase in the amount of goods people can bring into the country duty-free after travelling abroad. The amount you can bring into the country after more than 24 hours will rise on June 1 to $200 from $50; after more than 48 hours the limit rises to $800 from $400; after more than seven days the limit rises to $800 from $750.
Changes to the retirement system will be widely felt in the years ahead, particularly by lower-income Canadians who rely on both OAS and the smaller Guaranteed Income Supplement program. The age of eligibility for GIS, which pays a maximum benefit of $8,788 for single seniors and $11,654 for couples, will rise along a parallel track to OAS.
The government argues that with an aging population, measures must be taken to ensure OAS payments don’t drain more than their fair share from federal revenues. OAS is the government’s largest program, accounting for $38-billion last year. The cost will rise to $108-billion in 2030 without changes to the system.
The budget also introduces an option, available in July, 2013, to postpone taking OAS for as long as five years and enjoy higher benefit payments. A somewhat similar option is available for the Canada Pension Plan, but financial planners are lukewarm on it. They say it’s generally better to take CPP as soon as you qualify for the full benefit (there is an option to take a reduced CPP benefit before age 65).
The budget also contains a measure that will be particularly felt by high net worth individuals. It concerns the use of permanent life insurance policies to generate tax-free investment returns. The proposed changes, which are bound to be opposed by the insurance industry, would limit the amount of tax-free income people can generate in a life policy.
One more budget measure of note is a raft of tweaks and improvements for the registered disability savings plan, which was introduced in 2006. For example, investment income earned in a registered education savings plan, or RESP, may after 2013 be rolled into an RDSP in some situations.