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Ten things to know about federal income support for low-income seniors in Canada

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In the latest edition of How Ottawa Spends, we have a chapter titled "The Federal Government and Old Age Security: Then, Now, and the Future." The focus of our chapter was the potential impact of the Harper government's decision to move the age of eligibility for Old Age Security (OAS) benefits from 65 to 67.

This change had been announced by the Harper government in the 2012 federal budget; it was to start to take effect in 2023. The Trudeau Liberals promised in their recent election platform to not go ahead with the change; and after the election they did announce they would return the age of qualification for the OAS back to 65.

A recent report by Canada's Parliamentary Budget Office has resulted in some debate as to the wisdom of the Trudeau government changing the age of eligibility for OAS from 67 back to 65.

With all of this in mind, here are 10 things to know about federal income support for seniors in Canada:

1. The first income-support program for low-income seniors in Canada was called the Old Age Pension.

This program took effect in 1927, when the Old Age Pensions Act was passed. Labour unrest after the First World War had helped bring this about; there were general strikes all over Canada (including the Winnipeg General Strike in 1919 and a bitter strike in Cape Breton in 1925). Initially, the federal government would cost-share (50:50) this means-tested pension plan with those provincial governments which chose to participate. A few years later, this changed to a 75:25 federal-provincial split to induce more provinces to join. From the outset, the program was administered by provincial governments.

2. Over time, income support for seniors became more generous.

When the 1927 legislation was passed, an individual had to be 70 years of age or older in order to qualify. The individual also had to have an assessed annual income of less than $5,120 (in 2015 dollars) at the time of receipt. The maximum pension a single person could receive was $3,370/yr (in 2015 dollars). Beginning in 1947, the maximum annual pension that a single person could receive, in 2015 dollars, was $9,200.

3. Initially, First Nations who had status under the Indian Act were explicitly excluded from receiving a pension under the 1927 legislation.

The attitude of the federal government at the time was the Indigenous peoples should leave the reserve and stop being Aboriginal. If they left the reserve, they could qualify for an Old Age Pension. To do that, they had to renounce their Aboriginal status and become a British subject (Canadian citizenship didn't exist until 1947).

4. In 1951, major changes were made to this program and it became known as Old Age Security (OAS).

In 1951, the Old Age Security Act and the Old Age Assistance Act were both passed, providing the legislative basis for a new pension program that came into being in 1952. The former provided for a pension at age 70 while the latter provided for a pension for people 65 to 69 and in need. In 1952, the provinces agreed to a constitutional amendment that permitted the federal government to administer the program. This entire program was financed 100 per cent federally; there would now be no provincial money involved.

5. With the 1951 changes, members of First Nations were now eligible for benefits.

This reflected changes in attitudes after the Second World War; the public began to realize that returning Indigenous war veterans were not eligible for social welfare benefits that were available to the rest of Canada's population.

6. In the mid-1960s, major changes were made to the OAS.

Beginning in 1965, the OAS would now be one program for people over the age of 65. By this time, the system included a supplement, cost shared 50:50 with the provinces, that would be available to some seniors between the ages of 65 and 69. In 1966, the OAS was made available (universally) to anyone 65 and older. This had the effect of setting a standard for the age of retirement in Canada.

7. Today's OAS system serves 5.5 million Canadians; its current annual cost is $35 billion, or about 13 per cent of total spending by Canada's federal government.

As of May 2015, the full OAS was $6,800/yr. That full amount is available to Canadians with annual incomes below $71,592. Today, low-income seniors who received the OAS can also apply for the Guaranteed Income Supplement (GIS). The maximum GIS benefit for a single adult is $766/month, or $9,200/year. In the case of GIS recipients who continue to work, the GIS is "clawed back" at the rate of 50 cents for every dollar of income. About 1.8 million Canadians receive the GIS today. This costs Canada's federal government almost $11 billion/yr.

8. With the OAS/GIS system in place, there is substantially less poverty among seniors than there would be if the system were not in place.

Using the after-tax Low Income Measure (LIM), an individual or household is "in poverty" if their income is less than 50 per cent of the median income. In 1976, almost 23 per cent of seniors households fell below the LIM; by 1996, this number had declined to a mere 3 per cent. OAS and GIS are almost certainly responsible for much of this decline. The Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) is also having the effect of lowering the poverty rate for seniors. Once Canadians reach the age of 65 and receive income from OAS, GIS and/or CPP their poverty rate (as measured by the LIM) drops very substantially. For example, 37 per cent of single women aged 64 in Canada live in poverty; among 65-year-old single women, the rate is just 21 per cent.

9. Since 2003, the percentage of elderly Canadians in poverty, as measured by the LIM, has risen back up to almost 10 per cent.

That's largely because the LIM is set at 50 per cent of median income adjusted for family size; and since 2003, the median incomes of Canadians have increased in real terms. Meanwhile, lower-income seniors rely mostly on OAS/GIS and the CPP/QPP. OAS/GIS is indexed to the Consumer Prince Index (CPI) only (i.e. not to wages and not median income). The CPP/QPP you get in the year you retire is tied to average wages; but after you retire, your CPP/QPP increases by CPI only... so you fall relative to median incomes of the general population.

10. Our chapter argues that, if the change in OAS eligibility were to happen, the percentage of Canadians aged 65 and 66 living in poverty would increase substantially.

We made these calculations with the help of Statistics Canada's Social Policy Simulation Database and Model (note: David Macdonald is a whiz at this!). Many of those aged 65 and 66 not getting OAS/GIS would likely continue receiving social assistance benefits; and social assistance benefits are not as generous as the combination of OAS/GIS benefits. For example, a single senior with no other income currently has access to just over $17,000 annually from OAS and GIS; but as a social assistance recipient, the same person would receive between $7,000 and $11,000 per year (depending on the province) -- or $6,000 and $16,000 in the territories. What's more, social assistance is funded by provincial governments, meaning that the proposed changes would offload spending from the federal government onto provincial governments.

Frances Abele and Richard Shillington have been very helpful in the preparation of this blog post. Any errors are our own.

This post was prepared by Allan Moscovitch, Professor, Carleton University; Nick Falvo, Director of Research & Data at the Calgary Housing Foundation; and David Macdonald, Senior Economist at the Canadian Centre for Policy Alternatives.

Photo: KMR Photography/flickr

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