The increase in the age of eligibility of the Old Age Security program in Budget 2012 was widely telegraphed in advance but there were still a few surprises. Here are the other major initiatives introduced by Finance Minister Jim Flaherty in Budget 2012:

Travellers’ Exemptions Increased

The travellers’ exemption is a dollar limit that Canadian residents can bring back after a trip abroad without having to pay customs duties or sales taxes. Budget 2012 proposes that the Travellers’ Exemption limits will increase to $200 for an absence of more than 24 hours (current limit: $50), $800 for an absence of more than 48 hours (current limit: $400) and $800 for an absence of more than 7 days (current limit: $750).

Increase in Old Age Security Age of Eligibility

Starting in April 2023, the age of eligibility for OAS and GIS will be gradually increased from 65 to 67. In other words, Canadians who were born on or after Feb. 1, 1962 can expect to receive OAS benefits at age 67. The age of eligibility will gradually rise for Canadians who were born between April 1, 1958 and January 31, 1962. The OAS age of eligibility remains unchanged for Canadians born before March 31, 1958.

New Option to defer Old Age Security

Budget 2012 proposes that starting on July 1, 2013, Canadians can opt for a voluntary deferral of OAS for up to 5 years and receive an actuarially adjusted higher pension. Here’s an example provided in the Budget document:

Rita will be turning 65 in December 2013. She plans to continue working as long as she can. She prefers to forgo her OAS pension for the maximum deferral period of five years so that she can have a substantially higher annual pension amount, starting at age 70. When she takes up her OAS pension at age 70, her annual pension will be $8,814 instead of $6,481 (in 2012 dollars).

Eliminating the penny

As of Fall 2012, the Government will no longer distribute pennies. Good riddance!

Workforce adjustments

The Federal Government is planning to reduce its headcount by 19,200 over a three-year period, a number that includes attrition. Most of the job reductions will occur in the National Capital Region.

Adjustments to Public Sector Pension Plans

The Government is proposing that public sector employees contribute 50 percent to their pension plans over time (IIRC, the current employee contribution target is 40 percent). Starting in 2013, employees joining the public service will see the age of retirement raised from 60 to 65.

Other changes that maybe of interest in the Budget include protection of long-term disability plans and improvements in the registered disability savings plan.

This article has 14 comments

  1. OAS = is it affecting people at the age 54 as of today, or anyone born after 1958, or age younger than 54 as of the end of this year, or ???

  2. Great summary.

  3. @ali: Someone born on or after Feb. 1, 1962 (aged 50 or younger as of today) will be eligible to collect OAS at age 67.

  4. Pingback: What’s New Around The Blogosphere: March 30th, 2012 | Boomer & Echo

  5. The public service pension changes look substantial. I’m not sure what it means to increase the pension age from 60 to 65 when I know so many people who retired at age 55 with what they described as a full pension.

  6. Not a huge detail, but the current exemption, per person is $50 for travel of 24-48 hours, not $150.

  7. @Jon D: Thanks for catching the error. I’ve fixed it now.

    @Michael: I think so too. By full pension, I understand it to be 70% of the average of income in the last 5 years prior to retirement. I may be wrong but I think that it can be achieved after 35 years of service. So, someone collecting full pension at 55 would have started working at 20. It may be possible but it may not be typical.

  8. If the travel exemption for an absence of “more than” 48 hours is the same as “more than” 7 days (i.e $800), why even have the latter requirement?

    I bet future government will increase the OAS to 70 years. I don’t think people are living that much longer, it’s just that more are attaining the full life expectancy and there are fewer contributors.

    You contribute all your life and then you get a measly $6K (clawed back) in your “pre-croak” years.

    I wish they’d stop taxing dividends and capital gains – now that would roil the NDP!

  9. Your wording “The Government is proposing that public sector employees contribute 50 percent to their pension plans over time (IIRC, the current employee contribution target is 40 percent).” is somewhat misleading. Public sector employees do not contribute this fixed percentage of their pension costs *over time*. The percentages you’re referring to are assessed at the year of contribution, based on the long-term return assumptions of the PSBIB, which are fairly rosy (currently CPI + 4.3%). The PSBIB actually hasn’t managed to reach these return assumption targets in the past. Their 10 year nominal compounded return is just 5.56%, excluding all costs. The taxpayer then ends up contributing all the shortfalls, as well as the cost of running the PSBIB, which over time are fairly substantial.

    Or, looked at another way, even under the new budget plan, every dollar contributed by a public sector employee is granted a 50% match and then invested in a real return bond guaranteed to have a real return of 4.3%. I wish I could buy those bonds!

    Also, none of the above reflects the early retirement CPP supplement (which is fortunately going away in most cases in this budget).

    That said, the retirement system for Federal employees is way more fair than some of the provincial systems (from any number of perspectives).

  10. sadly, discontinuing penny distributions ≠ discontinuing penny circulation. when will the gov’t stop dragging down the economy and end the penny once and for all?

  11. While they are at it – reforming OAS – they should also lower the income thresholds or at least freeze indexation. It does not make sense to give handouts to people with incomes above the median. There are other benefits like the UCCB that should also be reviewed or axed as they potentially pay benefits to people who do not need them.

  12. Getting rid of pennies sounds like a good idea, but I only see it costing the consumer more. Yes, it will save the government the cost of making them, but COGS will rise as prices always “round up”. And Government will gain by grabbing taxes on the “rounded up” costs. Yes, it seems small, but on billions of transactions… it will be a windfall for everyone but the consumer.

  13. Kevin, that’s not how it works. If they do what’s in Australia, if you something comes out to 72 cents, you pay 70 cents. On a weekly grocery bill, nothing like taking it all the way up to 4 cents and sticking it to the man!

  14. With all due respect, Al… I would hope that is what would happen, but I don’t think it will be the final result.

    Greed has taken over business and, yes, our government, as well… The Harper Govt thinks of nothing but money and they will love this new windfall…

    Sorry… this is my opinion based on what has been shown to me by Business and Govt.

    It is a sorry state but I can see that it is being recognized by many on the Internet and there are movements in place to fight this… I have hope…