03/25/2012 04:00 EDT | Updated 05/25/2012 05:12 EDT

Old Age Security: Extending Retirement Age To 67 Could Hurt Provinces' Bottom Line, Analysts Warn


OTTAWA - Changes to Canada's Old Age Security program expected to be outlined in this week's federal budget will mean higher costs for the provinces, territories and municipalities, analysts warn.

Phased-in changes to the taxpayer-funded retirement program are widely expected to include raising the eligibility age for OAS benefits by two years, to 67.

The changes will mean other levels of government will be forced to top up social program supplements for low-income earners to make up for moving the qualification period by two years, says Allan Maslove, a professor at Carleton University's School of Public Policy and Administration.

"I think this is another example of federal downloading onto the provinces," says Maslove.

But it may be difficult for provinces, territories and municipalities to immediately quantify just how much more they'll have to pump into social assistance programs as a result, because the changes are being done "by stealth," says Maslove.

"(It is) perhaps even more stealthy that the downloading of the prison costs in the (federal government's) crime bill," he said.

Several provinces have already complained that they will have to bear the brunt of other policy changes instituted by the federal Conservatives, particularly under the Tory tough on crime agenda.

Federal officials acknowledge the changes to OAS eligibility will have some impact on the provinces and territories, as well as businesses.

And because of that, Ottawa will be looking for guidance from all levels of government and other stakeholders to mitigate the effects of the changes, but only after they are announced, says a spokeswoman for Human Resources Minister Diane Finley.

"We will engage with and work closely with stakeholders _ whether it's business, whether it's the provinces and the territories, whether it's other federal departments _ we'll make sure that we're working closely with those who will be potentially affected," said Alyson Queen, Finley's director of communications.

One of the major challenges for the federal government will be explaining to financial planners, and individual taxpayers, who is _ and who is not _ impacted by the changes.

"It will be important to clarify exactly who is affected and who is not. And for those who are, to ensure that they have plenty of time to plan and prepare for their retirement," said Queen.

The Conservatives have been careful to stress that the proposed changes won't affect current retirees, nor those who are close to retirement. It's expected that the changes wouldn't take effect for perhaps a decade or longer.

But the move is necessary "to ensure the long-term sustainability of important social programs," says a high-ranking government source.

There are, however, differences of opinion on whether the government needs to make the changes to ensure the taxpayer-funded retirement system is sustainable.

The government predicts there will be 9.3 million Canadians over age 65 within the next 18 years, roughly double the number of those above the traditional retirement age in 2010.

Canada currently pays out about $36 billion in Old Age Security and Guaranteed Income Supplement, or GIS benefits. Without dramatic changes that amount is expected to skyrocket above $108 billion by 2030.

"If we don't make any changes the overall cost of the retirement safety net payments is going to be substantially higher," says Andrew Dunn, a world-renowned tax adviser who works for auditing firm Deloitte Canada.

But a report by parliamentary budget officer Kevin Page in January questioned the government's claim that Old Age Security costs are unsustainable in the long term.

Page's analysis asserted that limits the federal government is imposing on health transfers to the provinces will save billions of dollars that could be shifted to the OAS program.

The plan is also not sitting well with the Canadian Association of Retired Persons. The advocacy group argues that OAS is sustainable for the long-run. It points out Canada spends a much smaller portion of its Gross Domestic Product on public pensions than the average of other OECD nations and has a notably younger population.

OAS is paid to all Canadian residents beginning at age 65 and is designed to provide a minimum income for seniors. Recipients with annual net incomes below $69,562 are paid $540.12 monthly with some of that amount clawed back from those earning more. The benefit is eliminated once a person's income exceeds $112,772.

For low income earners, the GIS pays a maximum $732.36 monthly.

Government sources have confirmed that by increasing the eligibility age for OAS, the qualification age for GIS top-up would automatically be increased as well.

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