Old Age Security Canada: Jim Flaherty Says Cuts To Elderly Benefits Won't Come Until At Least 2020
OTTAWA - Canadians won't have to worry about cuts to elderly benefits for years, Finance Minister Jim Flaherty said Friday, hinting that changes won't happen until at least 2020.
The finance minister's statement about Old Age Security changes follows a week of opposition attacks in the Commons that the government is undermining seniors' income support for ideological reasons.
But Flaherty, speaking to reporters in Oshawa, Ont., sought to downplay the severity of changes he is expected to unveil in his upcoming budget in March.
The changes are not for tomorrow, he said.
"This is for 2020, 2025 so that people who are middle age and younger today ... can be assured that they will have these social programs properly funded, fiscally responsible, that they’ll be there for them in the future," he said.
A spokesman for the minister said later the comment should not be interpreted as setting firm dates on when such changes would take effect.
Flaherty hasn't spelled out exactly what changes to the OAS he intends to introduce in the upcoming budget, but Prime Minister Stephen Harper said in a recent interview that one option would see the age of eligibility raised to 67 from the current 65.
Other options include accelerating the claw-back provisions in the scheme, which currently pays out a maximum of $540 a month, so that benefits decline at lower income levels.
Benefits currently begin being clawed back when an senior's income reaches $69,562, with all benefits returned at $112,772.
Opposition critics continued to blast the government for sowing fear among Canadian seniors and those approaching retirement.
"I can tell you I'm getting phone calls every time Mr. Flaherty and Mr. Harper throw out another bomb. Seniors react and I know Conservative MPs are getting those calls as well," said NDP critic Peter Julian.
Liberal finance critic Scott Brison said even if the government decides to delay the implementation date, OAS will become a "ballot box question" in the next election.
The prime minister is still taking flak from critics for first raising the pension issue in Davos, Switzerland, last month rather than on Canadian soil.
But most of the opposition has formed around the government's claims that it needs to limit the growth in costs to OAS because as the baby boom generation enters retirement the costs will become unaffordable.
The chief actuary's calculation of costs look prohibitive. The drain on Ottawa's treasury is slated to triple from the current $36 billion to $108 billion in 2030.
But experts, including some commissioned by the government itself, have said the OAS and the GIS (Guaranteed Income Supplement) won't break Ottawa's bank.
Earlier this week, Parliamentary Budget Officer Kevin Page came to the same conclusion, noting that the increase on all government-funded benefits to the elderly relative to the size of the economy will only rise from the current 2.4 per cent to 3.2 per cent. That's a far cry from the over 10 per cent of gross domestic product that many European countries pay to seniors.
"The only reason they have for making changes is sustainability and that argument has been blown to smithereens," said Brison.
In his comments Friday, Flaherty said the government "cannot ignore the fact that we an aging population in Canada and we want to ensure sustainability over the long term of our important social programs, including health care ... and retirement income issues generally."
Big Canada Pension Plan Changes Coming In 2012
Ottawa is bringing in a raft of new or tweaked policies to reflect that retirement these days is more of a gradual transition for many people rather than a single event. Many of these changes either begin in 2012 or are entering the next phase-in period, and they'll have a direct impact on the retirement plans of Canadians. In some cases, the changes are big enough that people nearing retirement may want to have a chat with a financial adviser before deciding exactly when to apply for a CPP retirement pension. (Justin Sullivan/Getty Images) <em>With files from CBC</em>
1. Early CPP, Lower Benefits
The first change involves payment rates. People can choose to take a CPP retirement pension as early as age 60. But there's a catch: A 0.5 per cent reduction in the pension payout for each month before age 65 that someone begins receiving it. That translates into a retirement benefit that's 30 per cent less at age 60 that it would be if you waited until 65. Starting in 2012, Ottawa is beginning to phase in a bigger reduction to get that early access. For 2012, the penalty rises to 0.52 per cent per month -- or a 31.2 per cent reduction for someone who starts receiving their retirement pension at age 60. The early-bird reduction will continue to rise until 2016, when it hits 0.6 per cent per month, or a maximum 36 per cent reduction for those who start receiving CPP payments at age 60 rather than waiting until they reach 65. (Getty)
2. Later CPP, Bigger Benefits
Similarly, those who wait until after the age of 65 to start collection CPP will get a bigger increase in their retirement benefit. Before 2011, the rules stated that the CPP retirement benefit was boosted by 0.5 per cent for each month after age 65 that an individual put off receiving it. So someone who waited until age 70 would enjoy a 30 per cent boost in their payments. But starting in 2011, the government began to phase in a gradual increase to that delay bonus. For 2012, the increase for each month after 65 that a person delays applying for CPP goes to 0.64 per cent -- or a maximum increase of 38.4 per cent for those who start receiving a pension at age 70. By 2013, the maximum bonus moves to 42 per cent. These changes won't affect people who are already receiving CPP benefits. They are being made, according to Service Canada, to restore these adjustments to "actuarially fair levels," so there are "no unfair advantages or disadvantages to early or late take-up of CPP retirement benefits." (Getty)
3. Drop-Out Years Increase
Canadians currently don't need to contribute to the CPP every year from age 18 to age 65 to get a full CPP retirement pension. When someone's average earnings over their contributory period are calculated, 15 per cent of their lowest earning years are automatically ignored when the calculation is made. For someone who takes their CPP retirement pension at age 65, that means seven years of low or zero earnings are dropped from the equation. But starting in 2012, that "general drop-out provision," as it's called, goes up to 16 per cent. For someone eligible for CPP benefits in 2012, that will allow up to 7.5 years of the lowest earnings to be excluded from the calculations -- boosting the retirement benefit paid. In 2014, the percentage will rise again to 17 per cent, which will allow up to eight years of low earnings to be dropped. These changes can really benefit people who entered the workforce late, who were unemployed for a long time, or took time off to go back to school. One point to note is that there are separate drop-out provisions specifically for time spent out of the workforce because of disability or to have children. (Alamy)
4. 'Work Cessation Test' Dropped
CPP rules used to require that someone stop or drastically reduce the amount they earned during the two consecutive months before they began to receive a CPP retirement pension. This was, for many Canadians, an annoying and costly requirement -- especially since so many people now ease into retirement instead of stopping work completely. Now, that rule is history. Beginning in 2012, the "work cessation test" has been eliminated. (<a href="http://www.flickr.com/photos/misteraitch/" target="_hplink">Flickr: misteraitch</a>)
5. Post-Retirement Benefits
There's another rule change that's important for semi-retirees to be aware of. Before 2012, if someone started receiving a CPP retirement pension early -- say, at age 62 -- they didn't have to make any CPP contributions if they decided to collect payments but also keep working after age 62. Starting this year, if you are under age 65 and continue to work while also drawing a retirement pension, you and your employer must make CPP contributions. The good news for employees is that these extra contributions will be credited to what's called a Post-Retirement Benefit (PRB), which will result in a higher CPP retirement pension in the year after you make contributions to your PRB. This measure is a nod to the reality that many "retired" Canadians are still working. Canadians who continue working after age 65 and are receiving a retirement benefit will have the choice of whether or not they want to make CPP contributions. If they choose to make them, their employer must kick in their share too. Those additional contributions will go towards higher benefits beginning the year after the PRB contributions. (<a href="http://www.flickr.com/photos/elwillo/" target="_hplink">Flickr: Keith Williamson</a>)
6. Premiums And Benefits Rise
CPP benefits are always adjusted to reflect the rising cost of living. For 2012, the increase in benefits is 2.8 per cent. That will bring the maximum monthly CPP retirement pension to $986.67. Contribution rates are unchanged. But since the yearly earnings maximum that the rate applies to is going up, the maximum annual contribution will rise by about $89 in 2012 to $2,306.70 for both employees and employers. (<a href="http://www.flickr.com/photos/redvers/" target="_hplink">Flickr:R/DV/RS</a>)