Changes to OAS will hurt low-income seniors

Simon's picture

By now most Canadians have heard about the changes to seniors’ benefits announced by the federal government in Budget 2012. Beginning in 2023, the age of eligibility for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) top-up will be increased from 65 to 67. As a result, seniors will have to work longer, draw from whatever savings they might have, hope for family support, or rely on provincial social assistance programs to get by.

Of course, these changes won’t be a problem for middle and upper-income seniors, those fortunate enough to have good pensions and healthy saving accounts. It will hurt the low-income Canadians who need income supports the most.

Finance Minister Jim Flaherty has said that the impact on poor seniors will be minimal, citing the fact that provincial social assistance programs will fill in the gap left by the changes. The reality, however, is that OAS/GIS provides a far higher level of income than any other social assistance program in Canada. Many low-income Canadians look forward to the day they turn 65 because of the better income benefit they can receive. The combined OAS/GIS benefit is still a modest amount – about $1,272/month – but it’s usually enough to pay rent and put food on the table.

OAS/GIS keeps millions of Canadian seniors out of poverty. In 2011, 1.6 million Canadians aged 65 and over were receiving GIS, the benefit program that provides additional support for the poorest seniors. Thanks in large part to these programs the poverty rate amongst Canada’s seniors went from a high of 36.9% in 1971 to 4.9% in 2007. Seniors’ poverty in Canada is half the average among OECD countries. It has been heralded as one of our country’s greatest social policy successes.

But how long will this be the case?

The well-being and dignity of Canada’s seniors are in a precarious state. Because many seniors live very close to the low-income threshold, it doesn’t take much to push them below the poverty line. In uncertain economic times like this, seniors’ financial livelihood is at great risk. Between 2007 and 2008, for example, seniors’ poverty jumped from 4.9% to 5.8% as the economic crisis took hold. What will be the implications of the increase in the eligibility age?

Pension expert and former Assistant Chief Statistician Michael Wolfson has calculated that if these changes to OAS were implemented today it would cause the number of 65 and 66 year old seniors living below the poverty line (which, in 2009, was approximately $18,680/year for a single person or $26,418 for two people as measured by the Low Income Measure) to more than double from 50,000 to close to 120,000.

So now for the obvious question: are these changes really necessary?

As we pointed out in our initial budget analysis, the government claims they are: with an aging population, the total cost of OAS/GIS is forecasted to rise from $38 billion in 2011 to $108 billion by 2030. That $70 billion increase, we’ve been told, is unsustainable. Yet, when taken as a percentage of total GDP (i.e. the total size of the economy), OAS/GIS program costs are forecast to rise from 2.36% in 2011 to a modest peak of 3.14% in 2030. An increase to be sure, but one that Canada can well afford.

CPJ believes that seeking the common good is everyone’s responsibility: individuals, communities, civil society organizations, businesses, and all levels of government. The federal government, though, with its policymaking, legislative, taxation and redistributive powers has an especially critical role to play that others simply cannot. In the case of OAS/GIS, the federal government is undermining one of its most important and successful tools in reducing poverty and promoting the well-being of Canadians.

It doesn’t have to be this way. Even if the funding crisis is real, there are other solutions, whether it’s saving money by changing the OAS clawback rate so only those with the greatest need receive benefits, or finding new sources of federal revenue via increased corporate taxes to cover the rising costs.

Next week, CPJ and our partners on the Dignity for All campaign for a poverty-free Canada will be participating in a two-day policy conference to look at federal income security programs, including seniors’ benefits. We will be developing concrete policy recommendations that will contribute to a model federal poverty reduction strategy and show that both good social and fiscal policy are possible. To show your support for a strengthened federal role in eradicating poverty in Canada, sign-up at www.dignityforall.ca

Simon is CPJ's Socio-Economic Policy Analyst.

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