Old Age Security (OAS) is a government benefit program that pays Canadians 65 years of age (and older) taxable income every month. It is Canada’s biggest pension program and taxpayers do not pay into it directly.
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In Bruce Cohen & Brian Fitzgerald’s book, The Pension Puzzle, they give an interesting history of OAS.
Historical Roots of OAS
The Old Age Security can be linked to 19th century Germany, where a German aristocrat (Otto von Bismarck) wanted to create a pension plan that was 100% publicly funded in 1889.
At that time the age of eligibility was set at 70, and lowered to 65 in 1916.
Discussions within Canadian government began in 1906 and in 1927, the Old Age Pensions Act was created which caused the federal government to half the cost of provincial pensions for anyone 70 or older. The monthly amount was equivalent to about $250 in today’s dollars.
The funding was based on a means test which meant the government took into account what you owned, not what you earned.
Each province eventually created their own pension plan and in 1949 the monthly amount was the equivalent to $360 in today’s dollars.
After World War Two, there was political pressure on the federal government to enhance the program and in 1952 the modern version of OAS was created – the Old Age Security Act.
Eligibility was now based on income, not means, which meant more people would qualify and the maximum monthly benefit remained the same.
Issue with OAS Program
The federal government ran into a funding issue with the new OAS program in the early 1950s.
The issue was the way the eligibility was determined. The government wanted OAS to be self-funding but without a means test (based on what you own, not what you earn) they weren’t able to collect premiums from low income earners. This meant the program was likely to run a deficit.
To solve this issue they did the following: they set aside a portion of general tax revenues (Manufacturer’s sales tax which later became the GST) for OAS, increased corporate tax rates and introduced a small tax on individuals (Old Age Pension Tax).
These solutions still didn’t work and by 1959 the program was still in a deficit. In 1972 the program was discontinued which made way for the modern OAS that we have today.
The Modern OAS Program
The modern OAS program is funded from general federal revenues and in 1967 the Guaranteed Income Supplement (GIS) was included as part of the program. The GIS was designed as a tax-free benefit for those who receive OAS but had little (or no) income.
In 1972, the program became indexed annually, which meant inflation was taken into account when determining monthly benefit amounts.
In 2000, government benefits were extended to same sex couples.
As of December 2014, the maximum monthly amount was $563.74. Monthly rates are set each quarter and are not reduced if the economy experiences deflation.
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What many people don’t realize is that you need to apply for OAS; you don’t automatically receive it. It’s best to apply before your 65th birthday.
OAS is based on income which means it can be reduced if income reaches a certain amount. This is called the OAS clawback and is designed to reduce the amount of benefits for higher income earners.
Related: The Basics of CPP