Growing old is never easy. There are several hardships involved and numerous readjustments required to be able to grow old comfortably. But if you are a resident of a country where the government does its bit to take care of you in your old age, the process becomes a lot easier. Canada is one such country that pulls all the strings to ensure its senior citizens are well taken care of. The Canadian Old Age Security Pension Program is one of the primary examples of how this works out. But what is the Old Age Security Pension program and what benefits does it offer? The following sections will attempt to elaborate on what the pension plan has to offer.
The Canadian Old Age Security Pension, also known as OAS, is one of the largest and most important programs that the Canadian federal government runs. The program is responsible for providing benefits to nearly 4.9 million Canadians and is a welfare policy that Canadians rely on. Earlier, the OAS Security Pension was funded by something known as the OAS Tax. This is, however, no longer the case. It is funded from general revenue.
The program is a basic security for senior citizens. It provides a monthly income to citizens above the age of 65. The main eligibility requirements are age and Canadian residency. Regardless of their employment or retirement status, an individual would be eligible for OAS if they meet the other requirements. The great thing about the plan is its flexibility. If there are seniors who have a low income, they can also qualify for additional OAS benefits like the Guaranteed Income Supplement (GIS), the Allowance for the Survivor and the Allowance. The OAS is not an automatic benefit. You need to apply for itf to enjoy its benefits.
The eligibility for the Old Age Security Pension is quite straightforward. There are not too many things you require to be eligible for the OAS but you will, of course, have to apply for it. The following are the eligibility requirements for the OAS Pension in Canada.
- You must be 65 years of age or more.
- If you reside in Canada, you must either be a Canadian citizen or a legal resident who has lived in Canada for at least 10 years after the age of 18.
- If you reside outside Canada, you must have been a Canadian citizen or a legal resident before you migrated from Canada. You must have resided in Canada for at least 20 years after the age of 18.
- In some cases, you may be eligible for the OAS if you have lived in a country that has a social security agreement with Canada. These are, however, specific cases and you will need to look into them individually.
As has already been mentioned above, you need to apply for the OAS, it does not start accruing automatically. To apply for the OAS, you need to send your application the month after you turn 64. In some instances, Service Canada enrolls seniors automatically and notifies them later. However, the recommendation is not to rely on this and send in the application on your own. You can complete the application for the Old Age Security Pension Form and mail it in at the appropriate time.
OAS Recovery Tax, or what is unofficially referred to as OAS Clawbacks is a process in which your OAS benefit may be reduced if your net income for the previous year increases by a stipulated amount. This amount differs for each year and, therefore, the clawback for each year is different. If your net income goes beyond this stipulated amount, you need to pay back 15% on the surplus income until you reach the maximum of the total OAS benefit you are eligible for. This deduction is an extra 15% over and above your current tax rate.
Yes, there certainly are ways to reduce OAS clawbacks. The following are some of the strategies you can use to reduce OAS clawbacks and enjoy the full benefit.
By splitting income, you may be able to lower individual spouses’ overall income. You can split eligible pension income like workplace pensions, RRIFs, and can also use spousal RRSPs. When the overall income lowers, it is not liable to the 15% OAS clawback.
Once senior citizens are eligible for their OAS pension, they have the option of deferring it for up to 5 years. They also have the option of deferring their CPP (Canada Pension Plan) for five years if they think they do not require the income immediately. While this will not trigger immediate OAS clawbacks, since the benefits will increase in later years, there may be OAS clawbacks at a later date. In other words, the OAS clawbacks may also get deferred if not avoided entirely.
Prioritizing your contribution towards TFSA (tax-free savings account) is a good way to reduce OAS clawbacks. The income that you make from your investments in a TFSA are not taxable and will not be considered in your net income.
Contributing to an RRSP is a very good way to reduce OAS clawbacks. You can contribute to an RRSP until you turn 71. If you have not made use of your RRSP contribution room in previous years or still have an income, you can contribute to an RRSP and reduce your net income for the OAS calculations of that year. You can also make spousal RRSP contributions to the same effect.
Apart from RRSPs and TFSAs, there are other investment options that you can consider. However, this can be a slippery slope as investment does not always mean you can mitigate taxes. Interest income from Guaranteed Income Certificates (GIC), savings, etc. are fully taxable. Dividends are grossed up so they may cause your income to spill over beyond the maximum threshold. So invest certainly, but be sure to read the fine print.
In recent years, there has been a lot of talk about changes in OAS. Some of these changes have already been implemented, while others are still in the pipeline. The following are some of the changes that have been implemented already and some you can expect to see.
- Increase in Eligible Age for OAS: From April 2023, there were expected to be changes in the eligible age for OAS. The changes were to be implemented over a phase of six years. By January 2029, the implementation was expected to be complete. However, there has been news of this provision being reversed and the age limit remaining at 65 instead of changing to 67.
- Voluntary Deferral of OAS Pension: The voluntary deferral of the OAS pension for up to five years has been in implementation since July 2013. This has been mentioned above as an option to reduce OAS clawbacks.
- Proactive Enrolment in GIS and OAS: This change in the program has already been implemented. It went on the floors in 2013 and the implementation was completed by 2016. The idea is to automatically notify those who are eligible for the OAS. Those who are not eligible for proactive enrolment will be sent the applications or can pick the applications up from Service Canada. You need to apply for the OAS at least six months before you turn 65.
Why are changes being made to the OAS program and what has prompted these changes? These decisions have been arrived at after a lot of deliberation. The following are some of the important reasons that have prompted changes to the OAS program.
- Average Age of the Population: Baby boomers (those born between 1946 and 1964) form a major chunk of the population of Canada. In the last few decades, the life expectancy of people has certainly increased. People are living well beyond the age of 70 and the Canadian government anticipates the population of Canadian seniors doubling from 2011 to 2030 (from 5 million to 9.4 million). This means that the burden on the OAS program will only increase since the percentage of working-age Canadians (those who are eligible to pay taxes) compared to senior Canadians, will be considerably less.
- Cost of Maintaining the Program: If changes are not made in the program, the burden on the taxpaying population will increase significantly to keep the program afloat. The 2012 budget estimated that the cost of the program would go from $38 billion in 2011 to $108 billion in 2040. This is certainly a scale up in numbers that need to be addressed.
- Deferment and Flexibility: As has been mentioned above, seniors have the option of deferring the OAS pension for up to five years. This gives them great flexibility and allows them to decide when would be a more appropriate time to start receiving the pension. Today, a lot of people continue to work well after they turn 65. This means that they do not have an immediate need for the pension to flow in. The option to defer means that seniors can decide when they want to start getting paid based on their circumstances.
- Ease of Use and Efficiency: The proactive phased-in enrolment of seniors for the OAS and GIS programs is a great way to reduce the burden on seniors to enroll themselves. It makes the whole program a lot more efficient and streamlined and will ensure those who are eligible are comfortably within the ambit of the program in good time.
Now, so far the discussion has been about the OAS Pension Program. However, there has also been mention of CPP, the Canada Pension Plan. Since both are state-funded pension programs, how are they different from each other? The programs are similar in so far as the fact that they are both pension plans. There is, however, one crucial difference. While you become entitled to an OAS pension by living in Canada for at least a decade after you turn 18, the requirements are very different for the Canada Pension Plan. The following is a brief breakdown of all the differences between the OAS Pension Program and the Canada Pension Plan.
- For the OAS pension, you need to have lived in Canada for at least 10 years after you turn 18. Whereas, for the Canada Pension Plan retirement pension, you need to have worked in Canada and made contributions to the plan so you can avail of the benefits later.
- The OAS pensions are paid from the general revenues of the Government of Canada. Whereas, the Canada Pension Plan works through contributions both you and your employer make over time. If you are self-employed, you will need to make both the contributions (the contributions are equal).
- The OAS pension starts at the age of 65 (though there has been talk of increasing the age to 67). Whereas, the Canada Pension Plan is more flexible. It can start at 60 or even at 70, depending on your circumstances and requirements.
Though every eligible Canadian resident over the age of 65 has the right to their OAS pension, there are a few things you may want to know about the program so there is no confusion. The following are some of the finer details of the program that you may be interested in knowing more about.
If your income is low and you are eligible for the OAS pension, you may also be eligible for the Guaranteed Income Supplement (GIS) program. There are a few different clauses in this program that apply in different cases. If there are spouses and common-law partners of the Old Age Security pensioners who are also eligible for the GIS program, they may receive the allowance between 60 and 64 years of age. On a related note, for widows and widowers in this age group, if they have a low income, they may be eligible for the Allowance for the Survivor. The GIS or the Allowance needs to be applied for separately if you are eligible.
If your net income (before adjustments) is greater than $75,910 (2019 threshold), you may have to return part of or all of your OAS pension, in accordance with the Income Tax Act. Depending on the difference between your net income and the threshold amount for the year, you will need to repay all or part of your income. The threshold is adjusted every year depending on inflation. These reductions do not apply to the Canada Pension Plan as the contributions are made by you and do not come out of the general revenue.
The question of whether or not the OAS pension is taxable is an oft-asked one. The simple answer is yes, the basic OAS pension is taxable and needs to be reported as income when you file your tax returns. The Guaranteed Income Supplement and Allowance, however, are not taxable. Still, they do need to be reported when you are filing your tax returns.
Do the parameters of the OAS program change depending on the cost of living? It certainly does. The amount that is owed for an OAS pension, GIS, Allowance and Allowance for the Survivor is reviewed every quarter (January, April, July and October). These reviews make note of the increases in the cost of living in accordance with the Consumer Price Index.
The question of residence is very important in deciding whether or not you are eligible for the OAS program. If you are a Canadian citizen working abroad for a Canadian employer, it may be counted as a period of residence in Canada. To qualify for this status, you need to have returned to Canada within six months after your employment tenure has ended. Alternately, you need to have turned 65 while you were still employed outside Canada. There are instances when this provision can also be extended to spouses, common-law partners, dependents, students as well as Canadians working abroad for non-Canadian employers and organizations.
There are also instances where Canada has social security agreements with other countries, which means you can avail of a few social security benefits from both Canada and the country you reside in (if the two have one of these arrangements). If, as is often the case, you lived in neither country long enough to qualify for the benefits there, there are provisions through which the time that you spent in the other country can be considered as time spent in Canada, in order to make you eligible for social security benefits from both countries.
If you have not resided in Canada for at least 40 years after the age of 18 (and do not qualify for the provisions above), you will get only a partial pension. The value of the partial pension is 1/40th of the full pension amount for each year you have spent in Canada since you turned 18. For example, if you have lived in Canada for 20 full years since you turned 18, you will be entitled to 20/40th of the full pension. In other words, you will be entitled to half of the full pension benefit.
Since the deferment is a fairly new entrant to the OAS program, there are some frequently asked questions about deferment. The following are some of the questions that you may have about the deferment. The answers have been kept brief and concise so you have greater ease while navigating the following section.
If you have already received a notification letter that you have been enrolled for the OAS pension, is there a way to defer the payment after the fact? Yes, you can certainly defer the payment of your OAS pension after you have been automatically enrolled. If you have been automatically enrolled for an OAS pension, you may also be enrolled for GIS, provided you are eligible. However, you cannot receive your GIS benefit as long as the OAS pension does not start flowing.
You can either delay both the benefits, or you can also delay the GIS benefit and opt to receive only the OAS pension. The procedure to do this is fairly straightforward.
- Log into your My Service Canada Account and follow the directions that have been provided.
- Alternately, you can send a physical letter to Service Canada.
In case you choose the latter option, you must include either of the phrases in your letter:
- I declare that I do not want to receive the OAS pension or the GIS benefit at this time.
- I declare that I do not want to receive the GIS benefit at this time but still want to receive the OAS pension.
Important information that you need to include in the letter is your name, address, telephone number, signature as well as the date. You can also include your client identification number which is on page one of your notification letter.
When can you apply to defer your OAS pension? This depends on your financial circumstances and the requirements you have at the time. There are a few factors you may want to consider while deferring your pension or applying to defer your pension.
- Present sources of income as well as future sources of income
- Present employment status and future employment status
- Health situation
- Retirement plans
Applying for the OAS pension is straightforward, as it has been made clear above. You can apply for your pension up to 11 months before you want the pension to start streaming in. The date you want the pension to start coming to your account needs to be mentioned in explicit writing on your Application for the Old Age Security Pension and the Guaranteed Income Supplement. If, however, you are over the age of 70, it does not make any financial sense to defer the pension beyond that. There are no real benefits you can enjoy from deferring your pension beyond 70. If you have crossed 70, now is the time to apply.
If you have been receiving your OAS pension for less than six months, you are well within your rights to cancel it. You need to send a written application requesting Service Canada to cancel your pension within the first six months since you received the payment. You will also be expected to pay back, within the next six months, all the money and benefits you have received from the program within those six months. Any related benefits your spouse or common-law partner may have received during this time also need to be repaid within six months since you applied for cancellation. You can re-apply for the pension at a later date and the OAS pension you receive then will be an increased one.
Contacting Service Canada is the primary task when applying for the OAS pension program. Service Canada is the nucleus of this program and the center through which the benefits will accrue to all seniors. Of course, you can contact Service Canada directly to have your requests passed. Alternately, if you need someone to approach Service Canada for you on your behalf, that is also a possibility. You need to provide authority to a person to give and receive information about you from Service Canada. This can be done when you sign into the My Service Canada Account (MSCA) and completing the form. You can also complete the Consent to Communicate Information to an Authorized Person (ISP-1603OAS) form. You, as well as the person you have authorized, need to sign the printed form and then mailed to the Service Canada Center that is in your area. The mailing address will be provided in your form.
The authorized person, however, cannot apply for benefits on your behalf, or change your payment address, or adjust the withholding of tax in any way. If you require information on how to help homeless seniors with their pension, you can take a look at Supporting Homeless Seniors Program: How to act as a third-party administrator.
After you turn 64, in certain cases you may receive a letter from Service Canada to notify you that you are eligible for the OAS pension. This is part of the automatic enrolment process and it may not work for everyone as the process has not been phased in in its entirety. Once you are notified, you will need to apply for the OAS pension as soon as possible. You need to mail the completed application enclosed in your letter.
If in case, you get a letter informing you that you are eligible for automatic enrolment, you do not need to apply separately for the OAS pension (provided the information in your letter is accurate).
If you received neither a letter nor a notification from Service Canada the month you turned 64, you need to be mindful of the time frame on your own and apply right away. If you have already turned 65, apply without losing any more time as you do not want to miss out on any benefits. Service Canada may also be able to provide retroactive payment for up to 11 months since the date the organisation receives your application.
If you are not eligible for Old Age Security benefits, there are certainly other benefits you can consider. The Canada Pension Plan, of course, is a great option. Feel free to turn to the Benefits Finder that will help you navigate other Government of Canada, provincial and territorial benefits. There will certainly be a government plan that would be a good fit for you.
If for whatever reason, you feel the need to stop or cancel your OAS pension, this is possible only up to six months after you have received your first payment. The cancellation needs to be requested in writing in an application to Service Canada. Again, you will be requested to pay the amount you have received in the first six months since your pension started. You can contact Old Age Security to cancel your payment. If you want to stop the payment of OAS pension on behalf of a deceased person, take a look at the provisions here.
When you are receiving benefits and pension from the government, naturally you would like to be in the loop about the status of your payment. Accessing your personal information should be a top priority. You are well within your rights to see any original documents or copies of information about you that is recorded in a federal government file. You need to get a hold of the Treasury Board publication “Info Source: Sources of federal government information” and other forms to request this information. These forms are available in government offices, federal constituency offices and public libraries. If you are not currently a resident of Canada, these forms should easily be available at Canadian embassies or Canadian consulates.
The sections above have attempted to breakdown what the Old Age Security pension program in Canada entails. There has been an effort to provide information about who is eligible for this program, how you can apply for it and what are the recent changes and expected changes in the program. There has also been a greater focus on the deferment option as several people tend to take this provision up. But since this is a relatively new addition to the program, the information about it may still be sparse. Through the article above, you should be able to navigate the OAS pension program with ease, either for yourself or for a senior relative or friend. The plan is the right of every eligible Canadian citizen so make sure you avail of the benefits in time!