Canadian workers closing in on retirement have no need to panic over potential changes to government retirement plans, says James Lunney, Nanaimo-Alberni Conservative MP.
Prime Minister Stephen Harper floated the idea of increasing Old Age Security eligibility age from 65 to 67 during a speech in Switzerland, causing a swirl of debate as Parliament resumes for the winter session.
Harper said de-indexing OAS from inflation was also being considered as a means to save money, a key part of the upcoming budget announcement, which is the Tories’ first as a majority government.
Tweaks to the system are needed, said Lunney, to manage the looming bubble of baby boomers nearing retirement.
“No decisions have been made, but it’s fair to say government is looking at OAS because there are issues with sustainability of the program,” he said. “But no current pensioners will be affected, nor will anybody close to retirement be affected by any changes that are brought in.”
About 4.7 million Canadians currently collect OAS. In 20 years, as the baby boom storm passes through, it is expected about 9.3 million Canadians will be receiving OAS support.
Costs for the program are expected to rise 32 per cent over the next five years to $48.3 billion. By 2030, OAS will cost taxpayers about $108 billion annually. The general reserve contains about $280 billion today.
Lunney said that if implemented, increasing age requirements would be phased in over several years.
“The changes would apply to those reaching retirement in the future. The idea is not drastic, but it is essential for long-term planning,” he said.
Currently, 98 per cent of Canadians aged 65 or older receive OAS, whether they are working and regardless of pre-retirement income. Maximum monthly benefits are $540.12, according to Service Canada, with average benefits being paid hovering around $500.
For Canadians aged 65 to 69, OAS, an asset-based fund paid through general revenue, makes up about 13 per cent of their income. The monthly limit for a person collecting both OAS and Guaranteed Income Supplement is $1,240.
Jean Crowder, Nanaimo-Cowichan NDP MP, said changing the rules just as so many workers are set to retire is a big concern.
“It’s not in stone yet, but it’s a worry for people who have been planning their retirement, anticipating they could retire at 65,” said Crowder. “People are wondering if this is going to affect them.”
Crowder advised that before seeking financial advice, which can cost money, people should wait to see if changes are tabled in the upcoming budget.
Crowder added that changes to OAS are particularly worrisome for Nanaimo-Cowichan residents, which has a high number of seniors and is one of the poorest ridings in the country.
“The other piece of this that nobody is talking about is if you push the retirement age up, what does it do to new entrants into the labour market? If you’re not giving future generations an opportunity to enter the labour force, or at least move up in it, you’re impacting on their earning ability right now,” she said.
Lunney said Canada is experiencing a worker shortage already, and that will continue as boomers retire. The challenge, he said, is generating work where people want to live.
“We’re short of workers, we’re changing immigration policy to bring in more skilled workers,” he said.
CPP changes coming also
If money-saving changes to OAS are the shoehorn to push the baby boomer bubble through the retirement benefit system, then changes to the Canada Pension Plan can be seen as the lubrication. Those changes will be introduced from now through 2016, and will give retiring Canadians more options while keeping the pension plan sustainable.
The contribution-based pension plan will provide greater rewards for those who delay receiving CPP after age 65, and penalize those who opt to take it earlier.
Starting in 2012, Canadians who choose to receive CPP at the age of 60 or before will receive 36 per cent less than if they had waited to take it at 65, instead of a 30 per cent reduction prior to the change.
For workers who choose to wait to collect CPP until the age of 70, the pension amount will be worth 42 per cent more than if collected at age 65.
Other changes include allowing people who choose to work between ages 65 and 70 while receiving CPP to continue to make contributions along with their employer to increase benefits; the number of years of low or zero earnings that are automatically dropped from the calculation of a CPP pension will increase from seven to eight years by 2014; and people will be able to begin receiving CPP retirement pension without any work interruption, where before workers had to significantly reduce earnings for at least two months.