Changes to the Old Age Security Program
It's done! The federal budget has been tabled. As promised, it is a four-year action plan to stimulate the economy, sustain Canada's prosperity, and achieve a return to balanced budgets. The budget highlights include spending cuts amounting to about $5.2 billion, achieved primarily through departmental restructuring, without putting the burden of these budget restrictions on the backs of individuals or the provinces. These cuts include reductions of $1.1 billion in the defence budget and $688 million in the public safety budget (no new prisons), the elimination of approximately 19,200 public service jobs, including 11,000 through attrition. There will be reductions in bureaucracy, but contributions to existing programs will be maintained.
The budget is a vigorous economic action plan for Canada. Most important, it is a long-term vision. Many measures have been adopted to ensure that government policies encourage the creation of wealth and private-sector jobs. One of the important reforms contained in the budget are measures to ensure that every Canadian has access to benefits under the Old Age Security (OAS) Program. What are the changes?
Moderate, reasonable, and responsible reforms
First and foremost, we must acknowledge some hard facts about the current situation. The number of Canadians over 65 years of age will increase from 4.7 million to 9.3 million over the next 20 years. The OAS Program was created at a time when Canadians were not as healthy or living as long as they are today. Consequently, the cost of the OAS program is expected to increase from $36 billion a year in 2010 to $108 billion a year in 2030. Moreover, by 2030, there will be only two workers for each retiree. These figures are solid proof that immediate action is needed to ensure that every Canadian has access to the program, while at the same time maintaining the entitlements of individuals aged 55 and over. Our government therefore made a decision to increase the retirement age from 65 to 67 by 2029. The change will be phased in over a 17-year period, giving those who will be affected time to plan for their retirement.
In concrete terms, those born before April 1958 will not see any change in terms of the age at which they can retire. They will get full benefits under the Old Age Security Program at age 65. Changes affecting individuals born after that date will be phased in gradually.
A new, innovative measure
In addition, the Flaherty budget introduced a new measure that many who are nearing retirement age but are not quite ready to retire may find quite interesting. It's a known fact that people in their 60s are much healthier than previous generations and that many want to continue sharing their wealth of experience. Starting July 1, 2013, Canadians will have the option to voluntarily defer take-up of their OAS pension by up to five years past the age of eligibility in exchange for a higher, actuarially adjusted pension. For example, someone who takes up his pension at age 65 will collect $6,481 a year. If he continues to work until age 70, his annual OAS pension will be $8,814.
Pensions of MPs, senators and public servants
Last, the Flaherty budget announced major reforms to the pension plans of public servants and parliamentarians, to substantially increase individual's contributions to their pension plan. The pension program will increase the contributions payable by parliamentarians and significantly reduce pension benefits, so that the cost is consistent with the cost of pension products offered by most private companies, where the employee and employer make equal contributions (50/50). It is normal, indeed imperative, for all public servants, MPs and senators to play their part in the government's streamlining efforts. I will address this topic, which has undoubtedly also caught your attention, at a later date.