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When most pensioners just scrape by, why are we so generous to better-off seniors?

The Fraser Institute makes a good point when it recommends that Canada's old age security (OAS) program should stop being so generous to higher-income seniors. But while the cost-cutting ramifications would no doubt put a twinkle in the eye of any fiscal conservative, the greater potential is in better public policy – putting more of the nation's money in the hands of the seniors who really need it.

A report from the right-leaning think tank, released Tuesday, calls for Ottawa to lower the annual income threshold at which the government begins to reduce OAS payments to seniors (the "clawback," as it's known) to $51,000. Under current rules, seniors don't have any of their OAS clawed back until they earn, on an individual basis, nearly $71,000 a year. (For a couple, then, the threshold is a whopping $142,000.)

These recommendations won't be warmly greeted in many quarters. Despite the fact that OAS isn't truly universal anyway (for seniors with incomes over $115,000, the clawback is 100 per cent), many people view it as an untouchable guarantee to our hard-working elderly for service to their national economy. Ramping up the clawback would be seen as yet another attack on the sanctity of our elderly and our social supports for them.

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Ottawa launched the first – and biggest – volley in OAS reform last year, when it raised the age of eligibility to 67 from 65, to be phased in from 2023 to 2029. If anything was going to be a tough sell, it was snapping the decades-long national mindset about the age when retirement begins. (Until the mid-1960s, the eligibility age for OAS was 70 – at a time when Canadians' average life expectancy at birth was only about 71. Now, it's more like 82.)

Ottawa estimated that, once it's fully implemented, the higher eligibility age will save nearly $11-billion a year – a big deal for a support system that that faces considerable strain from the country's aging demographics. By comparison, the savings from changing the OAS clawback levels are modest; the report estimates that if its plan were in place for 2013, the government would save $730-million.

Indeed, the Parliamentary Budget Officer last year issued a report saying that the OAS program, as it stands, doesn't pose any serious threat to the Canadian government's fiscal sustainability. So why fuss about making changes that would anger senior voters and save only few hundred million a year?

Because the system, in its current form, is inherently unfair. The government is paying full OAS benefits to seniors who draw an income of as much as 50 per cent above the country's average worker's wage of $46,000. Even at the report's proposed $51,000 threshold, about 83 per cent of seniors would still receive full OAS benefits.

Meanwhile, 60 per cent of Canadian seniors have annual incomes below $30,000 a year; nearly one-third are under $20,000. Yet under the current system, they receive the same OAS benefits as much wealthier seniors drawing as much as triple their incomes.

The system is screaming for a redistribution of benefits, to pay less to wealthy seniors and use those savings to provide greater benefits to these Canadians living out their last years in near-poverty. The raising of the retirement age has already addressed perceived needs to rein in costs; if we're going to reform the pension system, let's use the opportunity to address income inequality among seniors.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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