The Canadian government has a couple of federal benefits to help seniors in retirement. The Old Age Security (OAS) pension is one such program which is a monthly payment you can get if you are 65 and older. The OAS is Canada’s largest pension program and is available to most Canadian residents and citizens. This pension was paid to over 6 million Canadians in 2019 and let’s take a detailed look at it in this article.
The OAS is funded by tax revenues
While Canadians make a monthly contribution towards the Canada Pension Plan (CPP), the OAS pension payments are funded from general tax revenues. In order to be eligible for the OAS, you must:
- be 65 years or older
- be a Canadian citizen or a legal resident at the time we approve your OAS pension application
- have resided in Canada for at least 10 years since the age of 18
In case you are living outside Canada, you must:
- be 65 years old or older
- have been a Canadian citizen or a legal resident of Canada on the day before you left Canada
- have resided in Canada for at least 20 years since the age of 18
The amount you receive depends on how long you lived in Canada after the age of 18. You can receive a maximum of $614.14 per month for the October to December 2020 quarter and the amount will be higher for each month you decide to delay your first payment after the age of 65.
When will your OAS be taxed?
The OAS pension is reviewed in January, April, July, and October to account for the cost of living that is measured by the Consumer Price Index. However, the monthly payment does not decrease if the cost of living goes down.
Retirees should note that in case their net annual income is over $77,580 in 2019, they will have to repay a part of the Old Age Security pension. Further, in case your net annual income increases the maximum threshold of $126,058 for 2019, the CRA will clawback the entire OAS pension amount.
The minimum income recovery threshold for 2020 stands at $79,054 while the maximum threshold is $128,149.
The Bullish takeaway
The OAS pension program offers a base level of income to Canadian seniors in retirement to ensure their basic needs are met. Most Canadians will find it difficult to bank on just the federal pension payouts such as the OAS and CPP to fund their retirement lifestyle.
They will need to supplement this with their personal or employer savings to maintain their standard of living. However, having an inflation-linked guaranteed payment for the rest of their lives is certainly a core piece to the retirement plans of several Canadians.