Targeting lower-income seniors

This article was published by Straight Goods News on January 31st 2012.  To see this article and other related articles on the Straight Goods News website, please click here.

by Ish Theilheimer

On May 2 last year, nearly four in ten Canadian voters went Conservative — giving Stephen Harper a majority government and a mandate, as he sees it, to reshape Canada. Some voters believed they’d get good management, some wanted to get rid of the gun law, some wanted law and order. Most voters probably did not vote to make retirement a far-away, insecure dream for themselves, but that may be what they chose.

Last week Stephen Harper went to Davos, Switzerland to drop a bomb of a trial balloon, hinting at plans to raise the eligibility for Old Age Security (OAS) benefits for Canadians to 67 from 65.

“A generation ago a proposal like that would have been accompanied by a White Paper.”

“It’s astonishing that such significant changes were announced in a foreign country in front of billionaires,” economist Monica Townson told Straight Goods News. “We seem to be able to pay for more prisons and fighter jets and pipelines, but we haven’t made the well-being of our own seniors a priority. Lower-income workers are the ones most affected, because they are unlikely to have other sources of retirement income.”

“This is a massive change in how we treat our retirees,” according to seniors’ advocate Susan Eng of CARP. “Something as substantive as this should be put to the people in a general election.”

Now, Eng notes the Conservatives are “walking it back,” a bit, with declarations that OAS policy will be “reviewed.” While no one in government will say categorically the age of eligibility is to be raised, she asks “Why don’t they just categorically deny it?” Instead, Eng says, “surrogates” from organizations like the Fraser Institute and CD Howe Institute have been floating trial balloons.

Increasing the age for GIS eligibility comes as an added burden to lower-income people because they are also most likely to have health problems and short life expectancies. Additionally, a change like this would have costly implications for provinces.

Statistician and social policy analyst Richard Shillington points out that programs like social assistance and provincial drug plans either end at or kick in at age 65. “How does that affect welfare?” he asked. “Are provinces going to extend it to age 67? Ontario, for example, now has a drug plan that covers two populations, people on welfare or people over 65. Will that now be over 67?”

“Many people are floating round in Canada who are desperately waiting to turn 65,” so they can have drug benefits, he said. “Are we going to make that 67?”

Even assuming that OAS costs need to be contained, there are many ways to do it without changing age eligibility, say Townson and Shillington. Changing the “clawback” percentages, or lowering the income threshold for clawbacks (currently set at $69,000), or income-testing for OAS by family income rather than individual income, could accomplish the same goals.

“You can easily come up with ten options” for cost reductions, said Shillington. “It’s a worthwhile conversation to have, but you need data, who it would affect and what are policy arguments. A generation ago a proposal like that would have been accompanied by a White Paper.” Proposals like the GST, trade deals, and tax credits, in the past, were formally discussed in public and modified with new evidence.

Federal programs would be affected too by raising the age of OAS eligibility. “What will this do for the Guaranteed Income Supplement (GIS) or CPP?” wonders Townson. “The GIS is only for people already getting OAS, and if they weren’t able to get OAS until age 67, again, the most affected people will be those with lower income.”

Townson points to another source of inequity, the federal Allowance program. This program is available only to spouses of low-income pensioners or widows, no matter how long they’ve been widowed, ages 60-65. “It discriminates on the basis of marital status,” she said. “If you’re not married you cannot get the benefit.”

At the same time, Cabinet colleagues back home were leaking word of massive cuts to come in this year’s federal budget, expected to hit all kinds of programs on which Canadians, especially lower-income ones, depend.

“This is the worst time to do it at all,” says Eng, with widespread unemployment and many older workers facing the prospect of never working again. “They’re going to hit the people who need the money most.” CARP has recommended other ways to save money, including “facing down the drug companies,” over pharmaceutical costs and enabling seniors to “meet their medical challenges at home.” CARP estimates the government is missing the opportunity to save tens of billions of dollars with health care reforms.

Early CPP benefits quietly eroded
Meanwhile, smaller, quieter bombs are going off for older Canadians who have chosen to draw CPP before age 65. Richard Shillington says taking early CPP used to be a “no-brainer” for lower-income workers and self-employed people. Now most of the benefits are gone — as they are learning when they do their taxes.

Taking early CPP already reduced the amount of CPP for which they were eligible later. That reduction has changed now, from 30 percent to more than 40.

And unlike some other forms of pension income, CPP payments were already subject to income tax. This year, however, early CPP recipients are learning they now also have to pay CPP premiums on employment income, which they may get back eventually under an obscure formula no one understands, according to Shillington. “They say you will get an increment for the additional contribution you put in. I have no idea and I am one of the few people in Canada likely to be able to understand.”

Some of this may sound obscure but it isn’t. If you have a great pension plan or if you’re rich, these changes won’t hurt you at all. You don’t need OAS. If not, you’re going to pay through the nose so wealthier people can avoid paying their fair share. It’s upsetting that this government appears set dealing with deficit concerns in ways that hit the most vulnerable people hardest.

It isn’t even clear the language of crisis Harper uses to justify harsh cuts is based on anything more than political rhetoric. Andrew Jackson writes, on the Progressive Economics Blog, “The latest actuarial report on the OAS/GIS projects that the number of recipients will increase from 4.9 million today to 9.3 million in 2030. But the increase in total costs that is projected is much more modest, from 2.4 percent of GDP to a peak of 3.2 percent in 2030. That is because our economy will continue to grow.”

And with the additional costs to provinces of welfare and other programs that would have to change to accommodate OAS changes, any savings are likely to be marginal.

Last week we attended a Canadian Labour Congress (CLC) photo opp used to publicize a new report on the negative effects of corporate tax cuts and their poor record in terms of job creation. The CLC staged a pig race with toy pigs representing major corporations racing for the highest profits and tax cuts.

Ish Theilheimer is founder and president of Straight Goods News and has been Publisher of the leading, and oldest, independent Canadian online newsmagazine,, since September 1999. He is also Managing Editor of He lives wth his wife Kathy in Golden Lake, ON, in the Ottawa Valley.

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