The Bloc Québécois has placed a 10% increase in Old Age Security (OAS) payments for seniors aged 65-74 at the center of its political demands. With the Trudeau government’s minority status, this move could shift policy—or trigger an election. But is this proposal the right step forward? Many experts argue otherwise, highlighting flaws in its targeting and its significant fiscal impact on future generations.
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The Rising Costs of OAS and Its Intergenerational Burden
OAS remains Canada’s largest federal expenditure, and its cost is growing rapidly with the aging population. The program operates on a pay-as-you-go basis, meaning taxes from today’s workers fund current retirees. This creates an intergenerational imbalance, especially as Ottawa continues to run deficits, making younger Canadians bear the burden of increased borrowing.
Moreover, the 10% boost primarily benefits middle- and upper-income retirees while the age group in question—65 to 74—has a low poverty rate compared to other demographics. Critics suggest that this policy represents an inefficient use of taxpayer funds and raises questions about its long-term sustainability.
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Historical Context: OAS vs. CPP/QPP
Introduced in 1952, OAS predated the establishment of the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) by more than a decade. While OAS offers a base-level income for all seniors, its income-tested complement, the Guaranteed Income Supplement (GIS), provides targeted assistance to low-income retirees.
Over time, however, OAS has become less impactful as a replacement for pre-retirement earnings. By 2052, it’s estimated OAS will only replace 13% of the median retiree’s income, compared to 26% in 2012. In contrast, enhancements to CPP/QPP will gradually increase income replacement rates, but these changes remain limited, leaving Canada’s retirement system ranked 24th globally for adequacy in 2024.
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The Case for Folding OAS Into CPP/QPP
A better approach could be to gradually incorporate OAS into the CPP/QPP framework. Here’s why:
- Financial Sustainability: CPP/QPP operates on a partially funded basis with substantial assets, making it more resilient to demographic shifts. Gradually shifting OAS benefits into CPP/QPP could stabilize costs over time.
- Targeted Support for Low-Income Seniors: By expanding GIS instead of universally increasing OAS, low-income seniors could still receive sufficient financial support while reducing unnecessary payouts to wealthier retirees.
- Taxpayer Relief: Redirecting OAS funds into a more efficient framework could potentially lower federal income tax rates, creating room for federal-provincial tax negotiations.
A Pragmatic Vision for Reform
Under this proposal, GIS could be expanded to ensure a minimum income at or above the “low-income threshold” while introducing steeper clawbacks as retirees’ incomes rise. This targeted model would reduce costs while protecting vulnerable populations.
Simultaneously, integrating OAS into CPP/QPP would necessitate a careful assessment of its impact across generations. The transition could be smoothed through phased contribution increases, ensuring fairness and affordability for all Canadians.
A Path Forward
Eliminating or restructuring OAS could lead to a more sustainable and equitable retirement system for Canadians. This shift would not only ease the federal fiscal burden but also create a framework for meaningful federal-provincial dialogue on taxes and social policy.
With public finances under strain and an aging population on the horizon, bold reforms like folding OAS into CPP/QPP represent an opportunity to future-proof Canada’s pension system.
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