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People burned by OAS change should enjoy deferral bonus

When the 2012 federal budget passes, I can kiss about $25,000 goodbye. That's approximately the amount of OAS benefit I would have received in 2043 and 2044 were it not for the bump-up in age eligibility from 65 to 67.

While that is still over three decades away, somehow it seems much less innocuous of a change when I calculate the dollar amount.

The change was sold based on the idea the OAS (Old Age Security) program wasn't sustainable. Currently OAS, and the closely tied Guaranteed Income Supplement and Allowance programs, are equal to 2.36 per cent of GDP in terms of expenditures, but that goes up to a whopping 3.14 per cent of GDP in 2030.

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Wait a second. Whopping? That's not going to break the system at all.

And keeping looking forward. Although it sounds cold, the boomers will eventually die. By 2060 that expenditure is projected to fall back to 2.33 per cent of GDP, which is even lower than it is today. And remember, this is based on OAS at 65.

Granted, making projections of GDP and OAS expenses 50 years down the road assumes a lot, but these are the official projections from The Office of the Chief Actuary, and if policy makers were using different data, I'd like to see them.

Notwithstanding the questionable reasoning on financial grounds, in practice I can understand wanting to instill the perception of an increase in average retirement age. If we did nothing, the average length of retirement would eventually approach the average length of one's working career. I suspect the social and physical aspects of that reality are scarier than the economics.

If you're healthy and enjoy your work, delaying retirement is one of the simplest ways to bolster your finances. Every extra year of savings and every less year of tapping into retirement funds has a big affect on your retirement's financial success. As it so happens, the other big change to OAS is that you can increase your benefit by voluntarily delaying the payments past your earliest eligibility date. OAS benefits are increased by 0.6 per cent per month for every month you delay receiving them, up to a maximum of five years (an increase of 36 per cent). This measure is proposed to take effect in July of next year.

So if the OAS system is financially sustainable now and in the future, here's a question: As voluntary deferrals earn a premium in benefits, can those of us who got the shaft at least get a premium for our mandatory deferral?

Editor's Note: The voluntary OAS benefits increase is set to take effect next July. Incorrect information appeared in an earlier version of this article.

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About the Author
Personal Finance columnist

Preet Banerjee is a consultant to the financial services industry. You can follow him on twitter at  @PreetBanerjee. You can find his conflict of interest disclosure on his website. More

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