Old Age Security, commonly referred to as OAS, provided a base level of retirement income to over 6 million Canadians in January 2019.
Old Age Security is the Government of Canada’s largest pension program. Unlike the CPP, you do not pay into the plan directly. Instead, the pension payments are funded from general tax revenues.
There are a few rules for determining if you are eligible for the pension. If you are living in Canada and a Canadian citizen or resident age 65 or older, you must have resided in Canada for at least ten years since age 18. If you have lived in Canada for 40 years or more, you will receive the full OAS pension, which is currently $601.45. If you were born before 1952, you might also receive the full pension without being in Canada for at least 40 years. In order to receive the full pension, you must also have resided in Canada continuously for the 10 years before being approved for OAS. If you were absent during that ten year period you could still receive a full pension, depending on your circumstances. If you’re in that situation, the government website should help you determine if you are eligible.
If you don’t qualify for the full OAS pension, you can either wait until you do, or choose to take a partial pension. A partial pension is calculated by taking the number of complete years of residence in Canada after age 18 divided by 40. For example, if you came to Canada at age 45 and took OAS at age 65, you could receive 50% of the full OAS pension.
If you are living outside of Canada when applying for OAS at or after age 65, you must have been a Canadian citizen or legal resident when you left Canada and have resided in Canada for at least 20 years since age 18.
OAS provides an inflation-linked pension starting at age 65 until you die. There are no survivor benefits unless you’re a widow between ages 60 and 64 with an income below $24,552. After that, you apply for your own OAS pension.
Like CPP, there is the option to delay your OAS payments. The benefit is an increase of 0.6% per month, or 7.2% per year between ages 65 and 70. There is no option to take OAS earlier than age 65, and there is no benefit to delaying beyond age 70.
If you are considered low income, the Guaranteed Income Supplement (GIS) is also available. If you are single, widowed, or divorced, the maximum amount you could receive is $898.32. This is reduced as you earn more income and disappears once your income reaches $18,240. If you have a spouse, you could receive between $540.77 and $898.32 per month in GIS. The maximum income you can receive is $24,096 combined income if your spouse receives the full OAS, and $43,728 if they do not receive OAS.
If you earn more than $77,580 in income in 2019, your OAS pension will be clawed back (called a recovery tax) at a rate of 15% per dollar. Once you reach income of $125,937, the full amount of OAS will be clawed back. This is really at the heart of the question “when is my RRSP too large”? Since withdrawals from the RRSP are taxed fully as income, receiving large amounts of taxable income may cause your OAS pension to be clawed back. In my experience, few retirees have their OAS fully clawed back, and most couples can get away without having any OAS clawed back while still receiving reasonable retirement income. Those that do have their OAS clawed back tend to have large defined benefit pension plans. If you’re single receiving full CPP and OAS, you would only start to have OAS clawed back if your RRSP was over $1 million (in today’s dollars) at age 71 and a couple would need total RRSP’s to be double that amount. There are reasonable strategies like drawing down the RRSP’s prior to age 71 to limit the effect of claw back.
The Old Age Security program offers a base level of income to seniors in retirement to ensure that their basic needs are met. Many Canadians cannot rely solely on OAS or CPP to fund their retirement lifestyle and will need to supplement these with personal or employer savings to maintain their standard of living. However, having an inflation-linked guaranteed payment for the rest of their lives is certainly a core piece of Canadian’s retirement plans.
