With Inflation hitting multi-year highs across Canada, a 10% increase in Old Age Security pension will help offset higher living expenses for widows and widowers, especially those dependent on government benefits.
First, the good news on Old Age Security (OAS)
1. A 10 % increase in payments
All Canadian over the age of 75 will receive a 10% increase of OAS pension starting on July 2022. The payments will increase from $666.83 per month ($8,001.96 annually) to $733.51 per month ($8,802.12 annually).
| Age | Maximum monthly payment amount |
| 65 to 74 | $666.83 |
| 75 and over | $733.51 |
Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/benefit-amount.html
2. OAS is adjusted for inflation
OAS pension is reviewed and potentially adjusted several times during the year (January, April, July, and October) to reflect the increases to the Consumer Price Index (CPI).
Declines in CPI (although very unlikely at the moment) will not cause a decline to the OAS pension.
3. OAS may be deferred for up to five years
OAS may be collected at age 65 or may be delayed to age 70. By delaying OAS, the payment is increased by .6% for every month deferred.
For example, if OAS is delayed by five years, the payments increase by 36% (60 months multiplied by .6%). Assuming the annual OAS payment was $8,001.96 (see above chart), a five year deferral increases payments from age 70 onward to $10,882.67.
Now for the bad new on Old Age Security (OAS)
1. The OAS Claw back
Financial planners refer to the partial or full repayment of OAS as a “Claw Back” but the government calls it the “Old Age Security Pension Recovery Tax”.
Basically, the OAS recovery tax begins when a taxpayer’s world wide income exceeds $81,761 (for 2022) and is completely clawed back if their income exceeds $129,757 (for 2022).
For example, If Mary’s taxable income in 2022 was $90,000, the claw back is calculated as follows:
Step 1: Calculate the excess above the threshold
$90,000-$81,761= $8,239
Step 2: Calculate the claw back by multiplying excess by 15%
$8,239* 15%= $1,235.85
Step 3: Subtract the claw back from the base OAS
$8,001.96-$1,235.85= $6,766.11
The new clawed back OAS is now $6,766.11, reduced from the base of $8,001.96 and is taxed at the widows/widowers marginal tax rate.
Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/recovery-tax.html
2. Your late spouse’s OAS cannot be transferred to you
Sadly, the OAS pension program doesn’t offer a survivor benefit for surviving spouses. The widow/widower can only receive one OAS pension and no top up is offered.
Conclusion
During an inflationary and uncertain economic period in Canadian history, the OAS pension provides widows and widowers with a guaranteed and indexed pension for life.
But the lack of OAS survivor benefits and a claw back provision often reduces the benefits of the OAS program for many widows and widowers. Tax and cashflow planning are highly recommended to preserve as much of the OAS pension as possible.
Although OAS provides a reliable source of retirement income, it’s best if combined with other sources of retirement income such as Canada Pension Plan, employer pension plans and personal pension such as RRSPs, etc.
If you have any questions about your OAS pension or any other retirement income sources, please call our office for an appointment and I’ll help you calculate your retirement income.
Related blogs:
https://richarddri.ca/cpp-for-widows-ers-planning-for-retirement/
https://richarddri.ca/why-widows-especially-should-defer-cpp-to-age-70/
Dri Financial Group 