Human Resource specialists responsible for counselling employees who are preparing for retirement should be aware of recent changes to Canada’s Old Age Security (OAS) program.
OAS represents the single largest federal program in Canada, providing benefits to most Canadians 65 and over. In 2011 OAS cost $38 billion while by 2030 that figure is expected to climb to $108 billion.
Unlike the Canada Pension Plan, which is prefunded by employer and employee contributions, OAS is financed entirely through general revenues and depends on taxes generated by active workers to pay benefits. Unfortunately, the ratio of active workers to seniors is expected to fall from 4:1 today to 2:1 in 2030, while the number of seniors eligible for OAS is expected to almost double from 5 million today to 9.4 million in 2030. As a result, Canadian demographics are making OAS unsustainable.
In Budget 2012, the Canadian Government introduced “sustainability” measures for OAS in an attempt to curtail the outflow of tax dollars in the form of OAS benefits and thereby reduce the heavy tax burden that will be felt by younger workers. The most significant measure increases the eligibility age for OAS benefits from 65 to 67 and is phased-in over a number of years (2023 to 2029) so as not to disproportionately affect one age group.
Other new measures provide greater flexibility for employees as they transition to retirement and improve services for seniors. Effective July 1, 2013, employees can voluntarily defer take-up of their OAS benefits for up to 5 years in exchange for a greater benefit (to a maximum of 36% greater, at age 70) when payments begin. Also beginning in 2013 (and phased in until 2016) the Government of Canada will start an automatic enrolment process that will eliminate the need to apply for OAS benefits. Employees eligible for automatic enrolment will be notified by mail while ineligible employees will receive an OAS application form.
Details of the new OAS program measures should be updated in employee communications and Human Resource websites as soon as possible. Employers are reminded that employee benefit communications must be accurate and clear, since employees often rely on that information in making important decisions. Inaccurate or misleading information that is relied upon by employees to their detriment could give rise to claims for damages suffered by employees.
Placing Old Age Security on a Sustainable Path
For questions relating to the information presented in this article, please contact Claude Marchessault.