The federal government hiked the eligibility age for Old Age Security (OAS) to 67 from 65 reflecting the reality that Canadians are living longer and healthier lives, and may prefer to keep working.
However, the changes won’t begin taking effect for 11 years. Federal Finance Minister Jim Flaherty announced the adjustments in today’s federal budget, which also includes spending cuts totalling more than $5 billion.
The eligibility age for OAS will be gradually raised starting in 2023, with full implementation by 2029. The changes won’t affect people who are 54 or older, as of March 31, 2012. Those born on or after February 1, 1962 will have an eligibility age of 67. Those born between April 1, 1958 and January 31, 1962 will be part of the phase-in period, and will have an eligibility age between 65 and 67.
“If you’re an older person, you might be a bit concerned,” says Doug Carroll, vice president, tax and estate planning, Invesco Trimark, who was in the budget lockup with Advisor.ca. “OAS is a fairly small component of most people’s financial plans, if they are also involved in private savings. It’s a discussion point but I don’t see it affecting calculations in a really significant way. “
The budget also includes a new deferral option for OAS. As of next year, Canadians can voluntarily defer their OAS pension for up to five years, allowing for an actuarially-adjusted higher payment in later years.
For example, someone turning 65 in 2013 can defer OAS until they reach age 70. This will give them an annual payment of $8,814 instead of $6,481.
“You can defer your OAS in the same way you can now defer your CPP,” Carroll notes.
Ottawa is also introducing a “proactive enrolment regime” for OAS that will eliminate the need for many seniors to apply. The OAS is the single largest federal government program, costing Ottawa $38 billion in 2011 and projected to increase to $108 billion by 2030.
There are no changes to CPP contribution rates and Ottawa is moving forward on the implementation of Pooled Registered Pension Plans.
The budget includes minor tweaks to retirement compensation arrangements (RCAs), with Ottawa noting the CRA has identified some arrangements that seek to take advantage of various features of RCA rules to obtain tax benefits. The budget proposes new prohibited investment and advantage rules to directly prevent RCAs from engaging in non-arms’ length transactions. The rules are based on existing regulations for TFSAs and RRSPs.