April 2, 2012
Canadians wondering why government is making them wait longer to retire won’t find the answer in the new federal budget. Instead of a full and rational explanation, there is nothing but a thin repetition of previous assertions.
One thing is clear; the plan to move Old Age Security eligibility from 65 to 67 will have the greatest impact on low-income seniors, just the people such a program should protect.
Delaying OAS eligibility by two years is a double whammy for the poor. Not only will it cost them the $540 a month OAS payment, they will not receive the Guaranteed Income Supplement, a program that exists only to help those with meagre incomes. It provides a further $732 a month.
Without those two sources of income, seniors of limited means will not be able to retire. At best, they will have a full Canada Pension of $986 a month. That’s not enough to live on.
The government argues that the long advance notification will allow “ample time to make adjustments” to retirement plans. That’s great advice for middle-class people who ought to save for their retirements, but for low income earners, time isn’t the problem. It’s money. The median income for Canadians is about $29,000. If you only make enough to get by, adding to retirement savings isn’t an option.
The Conservatives say we’re healthier and living longer, so it makes sense to force a delay in the retirement age. The thinking is that retirement should be a fixed number of years, but one might better argue that work should be a fixed number of years.
Boomers are used to silly slogans like 50 is the new 40. Well, now 67 is the new 65. Despite that generation’s obsession with youth, age does begin to catch up eventually, certainly by most people’s mid-60s. As if to illustrate the point, Prime Minister Stephen Harper’s press secretary resigned Friday, saying that the job was simply too demanding for a person who is 64 years old.
It has been argued that extending the retirement age will keep people in the workplace, and paying taxes, for a greater number of years. That’s unlikely. Middle income people who can afford to retire at 65 or earlier will do so with or without the OAS. The people who will work longer are the poorest of the working poor, but they pay little or no taxes.
Perhaps cutting pensions for seniors would be justifiable if the crisis the government talks about really existed. Combined, the OAS and guaranteed income payments totalled $38 billion in 2011. By 2030, the government says, that figure will have risen to $108 billion. That sounds drastic until you remember the higher figure includes 19 years of inflation. In reality, the increased costs will consume an additional one per cent of GDP, which was considered sustainable until the government suddenly said it wasn’t.
It’s telling that the government has not told us what the old age pensions will cost in 2030 after it extends the eligibility age. Finance Minister Jim Flaherty was asked this question in a budget scrum, but didn’t offer a figure.
The government has said the OAS change is required because of cost pressures created by the huge baby boom generation, but its implementation rules have exempted most of the boomers from the new OAS rules to avoid immediate political suicide. Given that, what’s the point of the change?
So we have the unusual spectacle of the government of 2012 bringing in pension changes that won’t even start to take effect until 2023 and won’t be fully in effect until 2029. One can almost guarantee that overturning this change will be a political issue down the line. It makes a perfect election promise for the opposition parties, who can argue generational fairness and consideration for low-income seniors. Even better, they can do it without adding a dollar to the budget, since the savings are so far in the future.
If the government does want to constrain pension costs, there is a better way to do it. Canadians who earn just under $70,000 in net income get a full OAS payment. Beyond that, it is clawed back but not eliminated entirely until net income of $112,772. Do people with such high pension incomes really need a government pension supplement?
Canadians might prefer changing the clawback rules, but we don’t know because the government didn’t ask them. The proper way to introduce such a broad and important policy change is to do it in a white paper with an honest description of the problem and accurate depictions of possible solutions.
Instead, the Conservatives are ramming this through as if it were an impending crisis, when no action will be taken until 2023. There is plenty of time to slow down, explain all of this to Canadians, and get it right. If this government won’t do that, a subsequent one surely will.