Yesterday’s budget seemed to be a little bit for everyone with no new taxes or tax increases, increased duty free limits and the eventual elimination of the penny to mention a few things. Depending on how you view it, it was either good or not so good. The one change that has the attention of most people is the changes to the OAS and GIS benefits which are two government social programs.
As expected, the age of eligibility for Old Age Security and the Guaranteed Income Supplement benefits increased to 67 from 65. This change will start in April 2023 and will occur gradually over a six-year period, with full implementation by January 2029.
So what this means is that Financial Advisors will need to rework retirement plans for those clients that were planning on collecting OAS at age 65 as part of their retirement income.
A bit of history about the OAS as the legislation was introduced in 1952, replacing legislation from 1927. The act has been amended many times with one of the most notable being the drop in age eligibility from 70 to 65 which was phased in between 1965 and 1969.
The budget also introduces a new option for individuals who wish to work longer, and begin taking their OAS benefits beyond age 65. Starting on July 1, 2013, individuals can voluntarily defer the OAS pension for up to five years, and subsequently receive a higher, actuarially adjusted pension.
These changes aim to ensure the sustainability of the OAS and GIS programs as the Canadian population ages and the cost of the program surges.
The plan to increase the age of eligibility for OAS and GIS benefits will not affect anyone who is currently receiving benefits, nor anyone who is 54 years of age or older as of March 31, 2012. People born between April 1, 1958 and January 31, 1962, will become eligible to receive their OAS benefits and GIS between the age of 65 and 67, depending on their birth date.
The 11-year notification period, followed by the six-year phase-in period, is being provided to ensure that individuals have time to adjust their retirement plan accordingly, the government said.
The voluntary deferral of OAS pension is part of an effort to increase flexibility in the OAS program. Those individuals who choose to defer their OAS will receive a higher pension, calculated on an actuarially neutral basis, as is done with the Canada Pension Plan. As a result, individuals will receive, on average, the same lifetime OAS pensions whether they choose to take it at the earliest age of eligibility or defer it to a later year.
For example, someone who defers the OAS pension for five years and begins taking it at age 70 would receive an annual pension of $8,814, instead of the $6,481 they would receive if they began taking it at age 65.
Also in the Budget, it aims to make it easier for seniors to apply for OAS and GIS, through a "proactive enrolment regime" that the government plans to phase in between 2013 and 2015. This new system will eliminate the need for many seniors to apply for OAS and GIS reducing the burden on seniors and reducing the government's administrative costs.
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