I was recently reminded of upcoming changes to Old Age Security and thought it worthwhile to remind you too.
The OAS system was established in 1952, with payments starting at age 70. Life expectancy then was 69! Between 1965 and 1969, the starting age was reduced to age 65, where is has remained. The 2012 Federal budget introduced changes that, when fully implemented in 2029, will see OAS payments starting at age 67.
The changes will be gradually implemented beginning in April 2023, according to the following schedule:
But a more imminent change starts on July 1 of this year, 2013, when an option to defer the start of OAS becomes available. This is a voluntary deferral for up to five years and allows for an actuarially adjusted increase in the pension when it begins. The increase is .6% per month (7.2% per year).
This could be beneficial for someone who continues to work beyond age 65 and who would therefore be subject to clawback of their OAS, which, for 2013, begins at income of $70,954. The clawback rate is 15% of income in excess of the threshold, so full clawback is reached with income of $114,640.
While the deferral arrangement technically starts on July 1, 2013, if you turn 65 before then, you can simply not apply to start your pension and gain benefit of the deferral. We have learned that if you were born between August 1, 1947 and June 30, 1948 and have already begun to receive payments, but now would rather defer, you have 6 months after the first payment to request cancellation of your benefits by sending a letter to Service Canada. Upon approval, you will be asked to return payments you have received.
More details of the changes announced in the March 2012 budget can be found on Service Canada’s website: http://www.servicecanada.gc.ca/eng/isp/oas/changes/index.shtml
Depending on your personal situation, the new rules may provide planning opportunities to manage retirement income sources towards maximizing retention of OAS.
Source: Service Canada