INCREASESIN OASBENEFITS
By:ClintonOrr
AsofJuly2022,someCanadianswillbe seeing an increase in their Old Age Security pension benefits. There were a couple of changes announced in last year’s budget that are starting to now comeintoplay.Asarefresher,thereare two main federal pensions in Canada, the Canadian Pension Plan (CPP) and OldAgeSecurity(OAS).
If you’re working there is a good chance you’re paying into CPP and your contributionsarebeingmatchedbyyouremployer.CPPisnotfundedbythe government, it’s funded by you and your employer. All of those contributions fromworkingCanadiansandtheiremployershavegrown,andthereisnowa bigpotofmoney.TheCPPfundiscurrentlyover$500billion.
There is an investment board tasked with managing those funds and ensuringCPPissustainable Bycontrast,noonepaysdirectlytoOAS:thereis not a big pot of money set aside for OAS, it’s funded by the federal government We all pay taxes and some of that money ends up in OAS The programisnotbasedonemploymentincome,it’sbasedonresidency.
IfyouliveinCanadalongenough,yougetapension.IfyouliveinCanadafor 10 years after the age of 18, you will receive OAS After 40 years, you can receive the maximum pension. OAS starts at the age of 65 and for 2022, the maximummonthlypensionis$666.83.AsapartoftheOASprogram,youcan receive additional benefits through guaranteed income supplement, allowance, and allowance for survivors, assuming your income is below a certainthreshold.
Ifyourincomehappenstobeaboveacertainthreshold,theOASrecoverytax kicks in, and your OAS pension is reduced. Both CPP and OAS are indexed, while CPP is adjusted annually for inflation, while OAS is indexed quarterly. In 2021, a few budget changes were announced for OAS. The first item was a one-timepaymentof$500,paidinAugust2021,tothosewhowereeligiblefor OASandwereovertheageof75.Thesecondchangeincludeda10percent increasetotheOASpensionforthoseovertheageof75whichtookeffectin July2022.
Starting last month, those over the age of 75 will get a 10 per cent bump in theirOASpension,makingthemaximumOASforthoseover75isnow$733.51. By the end of June of 2022, if you were 75 or older, the increase in OAS took place automatically. If you are not 75 yet, the month following your 75th birthday, the raise will kick in and there will automatically be a 10 per cent increaseinyourOAS.
ThebumpinOASwillalsohaveaminorimpactontherecoverytax.Toputit simply,ifyouhavealargerOASbenefit,itwillrequireahigherincomeforthe entire pension to be clawed back. At the moment, the threshold for 2022 income,fortheOASrecoverytaxis$81,761.Forevery$1overthatthreshold,the governmentreducesyourOASby15cents.It’sessentiallya15%tax.Ifyouare under75andreceivingthemaxOAS,onceyourincomehits$134,253,youwill not receive an OAS pension. With the recent change, if you’re over 75 and receivingthemaxOAS,itwillrequireanincomeofabout$136,920,beforeyour OAS is entirely clawed back. OAS and CPP provide income during retirement andareintendedtobecomplimentstoyourownsavingsandpensions They shouldbeconsideredasyouroverallfinancialplan.
CANACCORDGENUITYWEALTHMANAGEMENTISADIVISIONOFCANACCORDGENUITYCORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORYORGANIZATIONOFCANADA
ThecommentsandopinionsexpressedinthisarticlearesolelytheworkofClintonOrr,not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for generalinformationonly,doesnotconstitutelegalortaxadvice,andtheauthorClintonOrr doesnotassumeanyobligationtoupdateitortoadviseonfurtherdevelopmentsrelated. Allinformationincludedhereinhasbeencompiledfromsourcesbelievedtobereliable,but its accuracy and completeness is not guaranteed, nor in providing it do the author or CanaccordGenuityCorp.assumeanyliability.
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