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Seniors Benefit: Turning Back the Clock

by Peter Forler

Many people breathed a sigh of relief when Paul Martin announced in July that after more than two years of debate, the federal government had decided to drop the proposed Seniors Benefit and stick with the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) combination.

The Seniors Benefit, which was first proposed in the March 1996 federal budget, was to have come into effect in 2001 and would have replaced both the OAS and the GIS for those of us born after 1935. Its main objective was to reduce the overall cost of the retirement system, thereby, it was hoped, ensuring its long term survival (quite the opposite of the tack taken with the other part of the system, the Canada Pension Plan, where as you will recall, the problem was solved by significantly increasing premiums).

In order to achieve the necessary cost reduction, the Seniors Benefit would have moderately increased benefits for seniors with below average incomes, while significantly reducing or eliminating them for those with higher incomes. Effectively, the proposed formula would have reduced the Benefit by 20% for each dollar of income in excess of $25,921 and the Benefit would have disappeared entirely at income levels of $51,721 for single seniors and $77,521 for couples. Seems pretty reasonable, doesn’t it, in a country where the re-distribution of wealth is generally accepted as a good thing? That is, as long as it is not overdone, of course. And it was the perception by many that the Seniors Benefit carried this idea too far that ultimately played a large part in its demise.

The main argument was that such a steep clawback would run counter to the idea that all of us should take responsibility during our working life for accumulating sufficient savings to carry us through our retirement years. Instead of encouraging individuals to save for retirement, the argument went, people in middle income brackets would be better off spending their money rather than have their hard earned RRSPs cause them to lose government benefits they would otherwise be entitled to. Also, the fact that the Benefit was to be based on family income was considered by some to discriminate against women whose husbands had high incomes.

While these concerns, no doubt, had their impact, it is clear that the decision to kill the idea was made a lot easier in the context of the much improved financial situation in Ottawa. As Paul Martin said: "The inescapable conclusion was that to take money out of the future public pension system at a time when the federal government will be running balanced budgets and surpluses seemed to be the wrong choice."

So we escaped a potential damper on our well-earned retirement years. But before you go and plan that world cruise, be reminded that even the OAS has a clawback provision, albeit somewhat less steep. You will still lose 15 cents of the benefit for every dollar of earnings over $53,215, and the entire benefit will disappear at $85,528. However, I would suspect you’ll get little sympathy from the average Canadian, who will have to make do with significantly less..