Forget snowbirds – OAS system is hurting average Canadians

Tracking air travel as well as land crossings could hurt the OAS benefits of snowbirds, but advisors point out there’s something terribly wrong with the way the system calculates many benefits even for long-time residents

Forget snowbirds – OAS system is hurting average Canadians
The federal government’s move to use border exit-tracking to save on OAS benefit payments fails to recognize the bigger picture that the OAS calculation is hurting long-time residents and it needs to be fixed.

“I understand based on the aging demographics that people may have to work longer and people are living longer,” Assante Financial Management advisor Glen Rankin told WP. “I understand the big picture. But if the [federal government] is talking about shaving people based on residency, we need to change the whole formula to begin with because it’s skewed in favour of newcomers. They’re getting a 22.5% lift over those that have lived here their entire lives. The system is inequitable.”  

The OAS system right now is based on years of residency between 18 and 67. However, you only need to have 40 of those 49 years of residency to get full OAS.

“Let’s say someone comes to Canada and lives here for 10 years, they qualify for 25% of OAS, even though they’ve only lived here for 20.4% of the qualifying years,” said Rankin. “They’re getting an arbitrage at the expense of Canadian taxpayers.”

“I’m 100% in favour of immigration,” said Rankin. “However, if I told you that you could move to Canada and you’re going to get a proportionate amount of the pension based on the time you lived here, you would say ‘okay that’s fair’, but not a disproportionate amount.”

And that’s what’s happening in Canada at the moment. 

He feels the calculation change to reflect the total amount of time someone’s been a resident of Canada between 18 and 67 – and not just the 40-year qualification period, would do a lot more to sure up the OAS system.

Under his proposed calculation someone who’s resided in Canada for 40 out of 49 years between the ages of 18 and 67 would qualify for 81.6% of OAS benefits, not the full amount. The person living in Canada for 10 years between 18 and 67 would qualify for 20.4% of OAS benefits, not 25%. 

That single move changing the calculation from 1/40th of the full OAS pension for each complete year of residence in Canada after age 18 – to 1/49th reduces the benefits a 10-year resident would receive by almost five percentage points saving the government far more than exit-tracking airports.