In recent years, there has been a great deal of public discussion about the availability and viability of federal income support programs for retirees. It’s not news that Canada’s population is aging, and the demands placed on government-sponsored retirement income programs will increase as greater numbers of Canadians reach the age at which they will be entitled to receive monthly benefit payments from those programs.
There are, essentially, three federal retirement income programs which are generally available to Canadians: the Canada Pension Plan (CPP), the Old Age Security (OAS) Program, and the Guaranteed Income Supplement (GIS) and Allowance.
The first, the Canada Pension Plan (CPP), is a contributory program, meaning that individuals make contributions to their own CPP “accounts” throughout their working lives. Those contributions are matched by employers and the total of contributions made after the age of 18 is used to determine an individual’s CPP entitlement later in life. An individual who is eligible to receive the CPP retirement benefit can choose to begin receiving it anytime between age 60 and age 70, with the amount of monthly benefit increasing for each year that receipt of that benefit is deferred.
The second major retirement income program is the Old Age Security (OAS) Program which is funded from general government revenues. The OAS Program requires no contributions from individual Canadians. Eligibility for the OAS benefit is determined by the length of Canadian residency, after the age of 18. Generally speaking, an individual who has been a Canadian resident for 40 years after turning 18 will receive the full OAS benefit, while a pro-rated benefit can be received by those whose period of Canadian residency is shorter.
Finally, for lower-income seniors who are eligible for OAS benefits, the federal government provides the Guaranteed Income Supplement (GIS) and Allowance. The amount of the GIS and Allowance varies, depending on whether the recipient is or is not married, and how much income the individual or couple is receiving from other sources.
The three components of the federal government retirement income programs have been subject to a number of changes over the past several years. Often, those changes have increased the age at which individuals can begin to receive benefits (as with the OAS program) or have created an incentive for individuals to defer receipt of benefits in order to increase the amount of monthly benefit to be received (as with the CPP.). In this year’s federal Budget, more changes to federal retirement income programs were announced; however, this round of changes will generally be welcomed by retirees and soon-to-be-retirees.
One of the most significant changes announced in the recent federal Budget is the restoration of eligibility for Old Age Security benefits at age 65. For many years, Canadians who were eligible to receive benefits under the Old Age Security Program were able to start receiving those benefits when they turned 65. However, a measure implemented by the previous government increased the age of eligibility for OAS benefits to 67, with the change to be phased in between 2023 and 2029. This year’s Budget cancels that measure. All Canadians who are eligible to receive OAS benefits will be able to begin receiving such benefits the month after they turn 65.
Changes have also been announced to the Guaranteed Income Supplement and Allowance program. The GIS and Allowance is a needs-based benefit, in which an individual’s income, or the combined income of a couple, is used to determine eligibility for and the amount of any benefit entitlement. There are many instances in which a senior couple must, for reasons beyond their control, live apart, such as when one member of a couple requires nursing home care. Inevitably, that means higher living costs for such couples. Changes will be made to current rules to ensure that couples in such circumstances will receive Guaranteed Income Supplement and Allowance benefits based on their individual incomes, which will mean higher benefits, better reflecting their increased cost of living.
Finally, the federal government announced in the Budget that a public consultation process will be held beginning later in 2016 with respect to the Canada Pension Plan. Fewer and fewer Canadians are covered by workplace pension plans, meaning a greater degree of financial insecurity after retirement. The federal government began discussions with the provinces in December 2015 on the question of whether enhancements to CPP were needed in light of current workplace realities and the fact that Canadians are living longer in retirement. The federal government’s intention is that inter-governmental consultation, together with the upcoming public consultation process, will lead to a decision on such enhancements before the end of this year.
These changes to Canada’s retirement income system were all announced in the 2016 federal Budget, and are outlined in more detail in the Budget Papers, which can be found on the Finance Canada website at www.budget.gc.ca/2016/docs/plan/ch5-en.html#_Toc446106782.
