OAS: the new rules

How new rules affect Canada’s old age security pensions.

Most likely you’ve heard that the government has raised the age at which you can start collecting your old age security (OAS) pension — to 67 from 65. Whether you are subject to the delayed start depends on your birthdate. But before we get into those details, let’s review the basics. OAS is a monthly pension provided by the federal government that is adjusted for inflation every three months. Your employment history is not a factor in determining eligibility; even people who have never worked can receive it. If you have resided in Canada for at least 40 years after turning 18, you should get the maximum.

In 2014 the maximum monthly amounts were:
  • January to March — $551.54
  • April to June — $551.54
  • July to September —$558.71
  • October to December — $563.74

Therefore, the total a person was entitled to last year was $6,676.59.

The problem with OAS for higher income people is the clawback. In 2014, 15% of any net income before adjustments (line 234 on your tax return) above $71,592 is clawed back from the OAS received. This is called the threshold amount.

People with a net income of $116,103 will have all their OAS pension clawed back. That is because 15% of the difference of $44,511 ($116,103 less $71,592) is equal to $6,676.59. If you have to pay back a portion of your OAS, it will show as a deduction on line 235 of your tax return as "social benefits repayment." This amount is deducted from line 234 to give line 236, your net income. The amount you owe is listed on the last page of your tax return on line 422 as "social benefits repayment."

The government has brought in changes to the OAS age of eligibility because it is worried about the future cost of the plan. It is estimated that there will be twice as many people aged 65 and older in 2030 as there were in 2011 — 9.4 million versus five million. Paying out the pension to that many people would put significant pressure on the federal government’s annual deficit because the OAS program is paid out of regular government revenue and therefore affects the bottom line.

Here’s how the eligibility age affects you. If you were born in:
  • 1957 or earlier, you can still collect at age 65.
  • 1958, before April 1, you can still collect at age 65. For April and May birthdays you’ll have to wait one month after turning 65. June or July will mean you’ll have to wait two months. August or September means a three-month delay. October or November means a four-month delay and those born in December will have to wait five months after turning 65.
  • 1959, January is a five-month wait, February or March is six months, April or May is seven, June or July is eight, August or September is nine, October or November is 10 and December  is 11 months.
  • 1960, January is an 11-month wait; those born in February or March will have to wait until they turn 66. The wait for those born in April or May is one month after turning 66. June or July is two months, August or September is three, October or November is four and December is five months.
  • 1961, January is a five-month wait after age 66. February or March is six months, April or May is seven, June or July is eight, August or September is nine, October or November is 10 and December is 11 months.
  • 1962, those with January birthdays have to wait 11 months after turning 66. Those born after January have to wait until they turn 67.
  • 1963 or later, you will have to wait until age 67.

Another significant change is the voluntary deferral of the OAS pension for up to five years after the age of eligibility. If you elect to delay, you will get a higher, actuarially adjusted pension when you do start collecting. Your pension will be increased by 0.6% per month of deferral. That’s 7.2% a year up to a maximum of 36% at age 70.

This provision is already in effect so it should be considered by anyone who can afford to wait. For people who earn more than the threshold amount, if they are able to delay receiving  it until they have a lower income, they will get to keep more of the pension because it will be higher due to the monthly bonus.