Another aspect of ‘entitlement’… continuing from where we left off. Another definition per the Merriam-Webster dictionary defines “entitlement” as: a government program providing benefits to members of a specified group; also : funds supporting or distributed by such a program. Let’s use Canada’s Old Age Security program (OAS) to illustrate. Benefits include the basic Old Age Security pension, the Guaranteed Income Supplement (GIS), the Allowance, and the Allowance for the Survivor.
In terms of its legislative history, the Old Age Security Act came into force in 1952, replacing legislation from 1927 requiring the federal government to share the cost of provincially-run, means-tested old age benefits. Since then, the Act has been amended many times. Some of the most important changes have been:
• the drop in age of eligibility from 70 to 65 (phased-in between 1965-1969);
• the establishment of the Guaranteed Income Supplement (1967);
• the introduction of full annual cost-of-living indexation (1972);
• quarterly indexation (1973);
• the establishment of the Spouse’s Allowance (1975);
• payment of partial pensions based on years of residence in Canada (1977);
• the extension of the Spouse’s Allowance to all low-income widows and widowers aged 60 to 64 (1985).
The OAS is the single, largest federal program. It is financed from general government revenue and provides benefits to most Canadians 65 years of age and over. Canadians are living longer and healthier lives; there will be nearly twice as many seniors in 2030 as there were in 2011, growing from 5 million to 9.4 million. This places significant pressures on the OAS program. How can it be sustained?
OAS annual expenditures are projected to increase from approximately $38 billion in 2011 to $108 billion by 2030. Today, 13 cents of every federal tax dollar is spent on OAS benefits. If no changes are made, by 2030-31, this spending is projected to increase to 21 cents of every federal tax dollar. It is important for us as individuals to financially prepare for retirement. It is unrealistic and irresponsible to ignore our role in securing for our own financial future. In some less fortunate countries, there would not exist a financial social welfare net to help us. The fact that Canada has such a welfare net can be viewed as a privilege rather than an entitlement.
The 2012 Budget introduced measures to gradually change the eligibility age for OAS program over six years, starting in April 2023. The eligibility age for the OAS pension and the GIS will increase from 65 to 67. The ages at which the Allowance and the Allowance for the Survivor are provided will also increase from 60-64 today to 62-66, starting in April 2023.
What will happen if in another future budget, the eligibility age goes back to pre-1965 at age 70? This would not be unheard of. It might even make more sense given the longer life expectancy today versus in the 1960’s. Will you be prepared?