Understanding the clawback of OAS benefits
October 1 was National Seniors Day and Daphne Bramham of the Vancouver Sun commented on the mix of transfers to seniors compared to Canadians under age 45. It was an interesting and worthwhile piece, though it didn’t include a critical component of the discussion: targeting or means-testing of income transfers to seniors.
One aspect of means-testing benefits of particular interest relates to Old Age Security (OAS), which was modestly reformed under the Conservatives. OAS is a flat benefit paid to seniors, which, unlike the Canada Pension Plan, is unrelated to employment.
Based on a 2013 study, I posted a comment on social media that upper-middle income earners receive full OAS benefits, which in my view doesn’t represent effective targeting of benefits. SFU Professor Marjorie Cohen disagreed and asserted that “OAS payments are fully taxed back.” (The comment has since been deleted.)
Prof. Cohen’s comment is not accurate and potentially displays a worrying lack of knowledge by an influential academic. For the 2015 tax year, eligible individual seniors whose income is less than or equal to $72,809 receive the full OAS benefit. Income earned beyond this level results in a reduction of OAS benefits at a rate of 15 per cent. This means that individual seniors earning income up to $118,055 receive partial OAS benefits. Seniors with income above this level have the entirety of their OAS benefits clawed back.
It is also important to understand that OAS benefits are calculated on an individual basis. This means that two seniors living together can have household income up to $145,618 (2015) and still qualify for full OAS benefits. Senior couples can earn combined household income up to $236,110 and still receive full to partial OAS benefits.
It is true that an individual or couple’s income can rise high enough that the benefits are clawed back, but it’s clear that upper-middle income seniors receive full OAS benefits—unless you define a senior couple with combined income of $145,000 as something less than upper-middle income. The OAS is therefore not an example of an effective, well-targeted income support program.
For further information on the Old Age Security and needed reforms please see Reforming Old Age Security: A Good Start but Incomplete.
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