OAS clawback questions

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AltaRed
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Re: OAS clawback questions

Post by AltaRed »

I would get rid of OAS over time and substantially boost the GIS program. It is not that difficult. Stop indexing OAS both in size and clawback ranges as a minimum and re-allocate that money to the GIS program. Be bolder and include a family income element to OAS qualification as I already suggested. It should not take more than 10-15 years to make the transition.
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Re: OAS clawback questions

Post by SQRT »

AltaRed wrote:
Too much 'gimme' out there in my opinion. My OAS is clawed back and I have no regrets about not having it. I'm lucky to not get it, than be relying on it. Let it be a social net for those that truly need it.
Agree. I generally don't read these type of threads but I couldn't sleep. Some interesting, thought provoking posts. OAS seems quite generous in my view and likely will need to be scaled back eventually.
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Re: OAS clawback questions

Post by brucecohen »

I've suggested (and predicted) for years that the OAS clawback should be based on joint income. Back in the Mulroney and Chretien years women's groups argued against that on grounds that OAS was the only income that career homemakers could call their own and control. But today there are very few homemakers who don't work or have never worked and thus accrued CPP credits.

I think the window for a total overhaul of OAS was shut when then-Finance Minister Paul Martin was forced to scrap his Senior's Benefit proposal. As evidence that it was a very good plan it attracted heavy fire both from groups claiming it was too generous and other groups claiming it was too stingy.
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Re: OAS clawback questions

Post by longinvest »

brucecohen wrote: I think the window for a total overhaul of OAS was shut when then-Finance Minister Paul Martin was forced to scrap his Senior's Benefit proposal. As evidence that it was a very good plan it attracted heavy fire both from groups claiming it was too generous and other groups claiming it was too stingy.
It's interesting that the document starts with:
Over the past decades, Canada has built up a retirement income
system as sound and effective as any in the world.

The three pillars of the system - Old Age Security and the
Guaranteed Income Supplement, the Canada and Quebec Pension Plans
and private retirement savings - provide a balance of government
and individual responsibility for retirement income security.
This confirms that OAS has been designed as the first of three pillars of the Canadian retirement system. It makes no sense, for a majority of Canadians, to delay retirement in order to accumulate an additional $300k to $400k to replace OAS. OAS is not welfare.

I'm not against improving the system, but I think that it would be unfair and harmful to change the system on an ideological basis, without accounting for promises made while people were gradually saving for their retirement over a period of 35 years. To be fair, any major change should follow an identical 35-year gradual implementation.
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Re: OAS clawback questions

Post by kcowan »

I agree that reforms are needed and I prefer an integrated GIS/OAS scheme with larger GIS range of payments and lower threshold of OAS clawback, possibly removing the unfair handling of grossed-up dividend income. But I am not hopeful that the Liberals will do anything.
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Re: OAS clawback questions

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longinvest wrote: I'm not against improving the system, but I think that it would be unfair and harmful to change the system on an ideological basis, without accounting for promises made while people were gradually saving for their retirement over a period of 35 years. To be fair, any major change should follow an identical 35-year gradual implementation.
Yes, any changes would have to be phased in. My pension drops whens I turn 65 as it's expected that I will apply for OAS to replace the lost income. I think that this drop is common with DB plans. So pension plans may have to change if OAS is changed and change takes time.
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Re: OAS clawback questions

Post by Shakespeare »

My pension drops whens I turn 65 as it's expected that I will apply for OAS to replace the lost income. I think that this drop is common with DB plans.
The drop is for CPP, not OAS.
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Re: OAS clawback questions

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Shakespeare wrote:
My pension drops whens I turn 65 as it's expected that I will apply for OAS to replace the lost income. I think that this drop is common with DB plans.
The drop is for CPP, not OAS.
Oh, right. I forgot as I am already collecting CPP.
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Re: OAS clawback questions

Post by Jo Anne »

izzy wrote::wink:
BRIAN5000 wrote: I think it was earlier determined on FWF that $60,000 should be enough for a retired couple anymore and you're just being greedy. Maybe some spending cuts should be in order :wink:
YES indeed! after all a non-working senior really only NEEDS 1000 calories a day! and you can put on another layer of clothing or stay in bed when it's cold :wink:
My husband and I have blown through all of $40,000 so far this year. And that includes over $5,000 for a couple of vacations. We live very comfortably and eat quite well. I think if we had to, we could manage nicely on $35-40,000.
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Re: OAS clawback questions

Post by izzy »

Jo Anne wrote:
izzy wrote::wink:
BRIAN5000 wrote: I think it was earlier determined on FWF that $60,000 should be enough for a retired couple anymore and you're just being greedy. Maybe some spending cuts should be in order :wink:
YES indeed! after all a non-working senior really only NEEDS 1000 calories a day! and you can put on another layer of clothing or stay in bed when it's cold :wink:
My husband and I have blown through all of $40,000 so far this year. And that includes over $5,000 for a couple of vacations. We live very comfortably and eat quite well. I think if we had to, we could manage nicely on $35-40,000.
I WAS being sarcastic by the way although if you can manage that well on $40,000 including vacations I'd love to know how you do it!
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Re: OAS clawback questions

Post by SQRT »

longinvest wrote:
I'm not against improving the system, but I think that it would be unfair and harmful to change the system on an ideological basis, without accounting for promises made while people were gradually saving for their retirement over a period of 35 years. To be fair, any major change should follow an identical 35-year gradual implementation.
35 years? Really. I hadn't even heard of OAS until I started doing my parents tax returns about 10 years ago. I would have been about 55. I doubt very much a 30 year old considers OAS much when thinking about the future. I would think a 15 year phase in would be sufficient.

Not sure why you think this is an ideological basis for change? Just too expensive and overly generous to some who don't really need it.
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Re: OAS clawback questions

Post by Chuck »

ghariton wrote:Such notice has been given in the case of age at which OAS starts.
Well, maybe. Below is a cut and paste directly from the Liberal Party 2015 election platform pdf (of course, politicians break their promises all the time).
We will restore the eligibility age for Old Age Security
and the Guaranteed Income Supplement to 65, putting
an average of $13,000 annually into the pockets of the
lowest income Canadians as they become seniors.
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Re: OAS clawback questions

Post by ghariton »

Chuck wrote:
ghariton wrote:Such notice has been given in the case of age at which OAS starts.
Well, maybe. Below is a cut and paste directly from the Liberal Party 2015 election platform pdf (of course, politicians break their promises all the time).
Yes. I did say elsewhere that I sure hope the Liberals break a lot of their electoral promises. This is one of them.

Anyhow, Canadians have been put on notice that OAS at 65 is not a sure thing. Now if only they were listening...

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Re: OAS clawback questions

Post by longinvest »

SQRT wrote:
longinvest wrote:
I'm not against improving the system, but I think that it would be unfair and harmful to change the system on an ideological basis, without accounting for promises made while people were gradually saving for their retirement over a period of 35 years. To be fair, any major change should follow an identical 35-year gradual implementation.
35 years? Really. I hadn't even heard of OAS until I started doing my parents tax returns about 10 years ago. I would have been about 55. I doubt very much a 30 year old considers OAS much when thinking about the future. I would think a 15 year phase in would be sufficient.

Not sure why you think this is an ideological basis for change? Just too expensive and overly generous to some who don't really need it.
Apparently, some people plan their retirement ahead more than others. I've heard about OAS as being the first pillar of my retirement in a seminar organized by my employer for younger workers (participation on a voluntary basis) when I was in my late 20s / early 30s, and I'm not yet 50. The main document stating OAS as the first pillar was from the government. I have shown that the government continues to state this on its web site, to this day.
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Re: OAS clawback questions

Post by SQRT »

longinvest wrote:
SQRT wrote:
longinvest wrote:
I'm not against improving the system, but I think that it would be unfair and harmful to change the system on an ideological basis, without accounting for promises made while people were gradually saving for their retirement over a period of 35 years. To be fair, any major change should follow an identical 35-year gradual implementation.
35 years? Really. I hadn't even heard of OAS until I started doing my parents tax returns about 10 years ago. I would have been about 55. I doubt very much a 30 year old considers OAS much when thinking about the future. I would think a 15 year phase in would be sufficient.

Not sure why you think this is an ideological basis for change? Just too expensive and overly generous to some who don't really need it.
Apparently, some people plan their retirement ahead more than others. I've heard about OAS as being the first pillar of my retirement in a seminar organized by my employer for younger workers (participation on a voluntary basis) when I was in my late 20s / early 30s, and I'm not yet 50. The main document stating OAS as the first pillar was from the government.
Good for you. I guess that explains your moniker a bit. OAS just seems like a minor amount. I know it might be important for some lower income people. I do think you are reading a lot more than you should into the order of a list. Means nothing to me, other than where the money comes from, so I will exit the discussion.
Last edited by SQRT on 20 Oct 2015 11:26, edited 1 time in total.
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Re: OAS clawback questions

Post by like_to_retire »

Shakespeare wrote:The drop is for CPP, not OAS.
He has an integrated pension, and as such would take CPP at age 60 to reduce the drop he'd suffer in CPP because of the extra non-earning drop-out years if he took it at 65, so the OAS is required to make up that difference.

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Re: OAS clawback questions

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SQRT wrote: Good for you. I guess that explains your moniker a bit. OAS just seems like a minor amount. I know it might be important for some lower income people. I do think you are reading a lot more than you should into the order of a list. Means nothing to me so I will exit the discussion.
While it might seem a minor amount to you, to many Canadian couples $13,000 per year is not a minor amount; it would require saving an additional $300,000 to $400,000 in order to generate it. This is a significant amount for money which can take years to build with savings and investment. Not everybody has millions in the bank to generate this amount in a few months during a bull market.
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Re: OAS clawback questions

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longinvest wrote:While it might seem a minor amount to you, to many Canadian couples $13,000 per year is not a minor amount; it would require saving an additional $300,000 to $400,000 in order to generate it. This is a significant amount for money which can take years to build with savings and investment. Not everybody has millions in the bank to generate this amount in a few months during a bull market.
Longinvest, you are missing the point entirely. You have the cart before the horse. No one is suggesting OAS (or a replacement) be eliminated entirely. Only that it be eliminated for those that already have more than enough income to have a comfortable retirement. No individual that already earns (or will earn) $70k per year in income (or a couple earning upwards of $140k) needs an extra dime from OAS. It is that simple. IOW, no additional savings required for those who already plan to be (or are already at) that threshold.
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Re: OAS clawback questions

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longinvest wrote:
SQRT wrote: Good for you. I guess that explains your moniker a bit. OAS just seems like a minor amount. I know it might be important for some lower income people. I do think you are reading a lot more than you should into the order of a list. Means nothing to me so I will exit the discussion.
While it might seem a minor amount to you, to many Canadian couples $13,000 per year is not a minor amount; it would require saving an additional $300,000 to $400,000 in order to generate it. This is a significant amount for money which can take years to build with savings and investment. Not everybody has millions in the bank to generate this amount in a few months during a bull market.
I think the argument here is that for couples in which $13K is NOT a minor amount, they will continue to receive it. Nobody is arguing to discontinue OAS as a program, just adjust the claw back threshold.

Google will quickly tell you the median household income in Canada is ~$76K. So if your household income is above that, I don't really think you can cry poverty too loud. Especially to the point that you want those households paying more income tax, so you can have the level of comfort you feel you are entitled to because politicians told you so 35 years back.
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Re: OAS clawback questions

Post by OnlyMyOpinion »

kcowan wrote:... possibly removing the unfair handling of grossed-up dividend income...
I'm interested to know your views on this.
We have saved to have dividend and interest income to fund our retirement, expecting nothing from OAS/GIS at the same time. Is this at risk?
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Re: OAS clawback questions

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We're talking about $300,000 to $400,000. So, at what level of income do you start the clawback, and what rate do you use?

The current clawback starts at $71,500 and has a rate of 15%, increasing the "effective marginal tax rate" by 15% for income between $71,500 and $116,000.

If you lower the clawback threshold, you'll increase the effective tax rate of the middle class. What an awesome plan! (NOT!!!)

We already see this kind of distortion of marginal tax rate with GIS clawback, making it silly for the poorest to put a dime into an RRSP.

A better solution would be for OAS to be fully capitalized (instead of being on a pay-go basis), without any clawback.
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Re: OAS clawback questions

Post by izzy »

longinvest wrote:We're talking about $300,000 to $400,000. So, at what level of income do you start the clawback, and what rate do you use?

The current clawback starts at $71,500 and has a rate of 15%, increasing the "effective marginal tax rate" by 15% for income between $71,500 and $116,000.

If you lower the clawback threshold, you'll increase the effective tax rate of the lower middle class. What an awesome plan! (NOT!!!)

We already see this kind of distortion of marginal tax rate with GIS clawback, making it silly for the poorest to put a dime into an RRSP.

A better solution would be for OAS to be fully capitalized (instead of being on a pay-go basis), without any clawback.
I'm not in your position Longinvest but I do tend to agree with you. What is forgotten in all this is that for most Canadians OAS and CPP are the ONLY pension income that is truly adjusted for inflation. If one could be assured that by forgoing those entitlements one would be compensated for doing so if one survived beyond the usual life expectancy then it would be acceptable not to claim it ,however OAS is only available on a "use it or lose it" basis. Perhaps it would make more sense to allow deferral with appropriate increments or even better claw it back from the estate (if any) at death ?
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Re: OAS clawback questions

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If I was JT, I would rollback OAS eligibility to age 65 but I would take the opportunity to freeze CPI indexing so that over time, clawback threshold decreases slightly and I would double the clawback rate to 30% to pay for that. Anyone already earning $71k of income elsewhere does not need an extra penny of social support, never mind at $116k, or even $90k... so there is no basis to complain about increased clawback rates. That kind of wealth transfer from working stiffs to wealthy seniors borders on the obscene. Anyone getting full OAS below that $71k threshold is not impacted and is still better off than the average Canadian.

No question OAS is going to have to be reformed in a very significant way to avoid the upcoming wealth transfer crisis. Best it be done in steps, because as Bruce indicated, Martin's proposed Seniors Benefit died on the vine. JT will have to address this during his term if he has any balls.

Added: Izzy, no one is suggesting about eliminating OAS for those in need. A social safety net is desirable for those who especially cannot save for their retirement. Both you and Longinvest seem to be blind to that. Get over that mind block and think about WHEN such support is in our country's interest.
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Re: OAS clawback questions

Post by Shakespeare »

like_to_retire wrote:
Shakespeare wrote:The drop is for CPP, not OAS.
He has an integrated pension, and as such would take CPP at age 60 to reduce the drop he'd suffer in CPP because of the extra non-earning drop-out years if he took it at 65, so the OAS is required to make up that difference.

ltr
I am well aware what he has; I have the same thing and did the same thing. But the fact remains that the drop is for CPP integration, not OAS integration.
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Re: OAS clawback questions

Post by BRIAN5000 »

Shakespeare wrote:
like_to_retire wrote:
Shakespeare wrote:The drop is for CPP, not OAS.
He has an integrated pension, and as such would take CPP at age 60 to reduce the drop he'd suffer in CPP because of the extra non-earning drop-out years if he took it at 65, so the OAS is required to make up that difference.

ltr
I am well aware what he has; I have the same thing and did the same thing. But the fact remains that the drop is for CPP integration, not OAS integration.
My DB allowed for both CPP and OAS integration I did neither.
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