Minister defends pension reform but does not address seniors’ poverty concerns

The federal government is stepping up its rhetoric to justify plans to cut public pension benefits, but remains silent on how it will address seniors’ poverty.

OTTAWA — The federal government is stepping up its rhetoric to justify plans to cut public pension benefits, but remains silent on how it will address seniors’ poverty.

In a speech in Toronto on Tuesday, Human Resources Minister Diane Finley delivered the government’s most nuanced discussion to date of its plans to reform old age security or OAS.

She confirmed that a detailed plan would be presented in next month’s budget.

And she targeted her pitch at younger Canadians, saying they will face higher taxes, fewer social programs or larger deficits unless major reforms are started right now.

“We cannot allow ourselves to be pegged into a situation where we are faced with a choice between the country’s financial security, and our commitment to aging Canadians who have worked long and hard to build this great nation,” she told a Canadian Club luncheon.

But Finley did not say anything about how the changes would affect low-income seniors who depend heavily on federal pension benefits to stay above water.

“A lot of Canadian seniors rely on this money,” said Susan Eng, director of advocacy for CARP, an advocacy group for people over age 50.

She attended the speech in the hope of learning more about the government’s plans, but said she left annoyed and concerned about the future for impoverished seniors.

OAS is tightly entwined with the guaranteed income supplement or GIS, a top-up for low-income seniors. The two-part system is widely credited for dramatically reducing poverty among seniors over the last 30 years.

Now that Ottawa is poised to lay out a plan in the next budget that could raise the age of eligibility to 67 from today’s 65, opposition members and a wide spectrum of experts have pointed to the need to consider vulnerable people over 60.

Government officials have made it clear that when cabinet ministers talk about reforming old age security, they are lumping in the guaranteed income supplement with the basic benefit that delivers about $500 a month to 98 per cent of Canadians over 65.

Unless Ottawa takes steps to separate the top-up from the basic old age security benefit, poor seniors would stay on provincial welfare rolls for an extra two years. Government sources say Ottawa is in discussions with provincial governments on this topic.

And since low-income seniors die earlier than high-income seniors, the federal government would be cutting disproportionately into their lifelong retirement benefits, analysts note.

In 2006, the government’s chief actuary found that the average life expectancy at age 65 of people receiving the guaranteed income supplement was much shorter than the life expectancy of those too rich to receive OAS.

He found that for men, poorer seniors were dying 4.5 years earlier than the rich. For women, the difference was 3.4 years.

So chopping two years off their benefits would be far more punishing for the poor than the rich, says Michael Wolfson, a former senior official at Statistics Canada now at the University of Ottawa.

“Cutting back on OAS, and more so GIS, hits those who not only are poorer, but also live fewer years to collect these benefits,” he said in a note.

“This would really hit those with low incomes, and (like the crime bills) could shift hundreds of millions in costs to provincial governments, since many in this age bracket might have to go on social assistance.”

There are ways the government could raise the age of entitlement for old age security but still deliver an income supplement to low-income people under 67, experts say.

But so far, the government has focused the discussion on the need for the government to save money over the long run.

“We will need to ensure that our government has the fiscal room to meet the various needs of an aging population … without putting an undue tax burden on younger generations,” Finley said Tuesday.

While other countries have acted to increase the age of eligibility to keep in line with aging populations, Canada has stood still, she said.

“It’s ticking along as if things haven’t changed demographically in 50 years.

Prime Minister Stephen Harper announced in Davos, Switzerland, last month that he would soon undertake major reforms to Canada’s retirement system. Current arrangements are “unsustainable,” he said, as more and more people retire and fewer and fewer people pay income tax.

The leading option is to gradually raise the age of eligibility to 67 from today’s 65, beginning in a few years’ time.

Other options could include changes to the clawback rules, which require individuals earning more than $69,000 a year to start paying back their OAS benefits.

The reform plan has been met with much skepticism, however, and is still in flux.

Opposition parties have pounded the government for backtracking on promises not to touch transfers to individuals in order to eliminate the deficit.

“Pushing seniors into poverty is not leadership,” New Democrat MP Matthew Kellway said after Finley’s speech. “Providing jobs for Canadians, providing jobs for Canadian youths — that would be leadership.”

Many experts say a discussion about the age of pension-benefit entitlement is worth having, given changing demographics. But they want a broader discussion on how changes would affect the retirement system as a whole.

“The one area that the minister didn’t mention, but I think is really important, is that there also is the guaranteed income supplement,” said Toronto-Dominion Bank’s chief economist, Craig Alexander, after the speech.

But he said that for most people, raising the age of eligibility would only mean marginal changes in the long run — working an extra year or two than originally planned.

“I don’t think that’s a negative because one of the biggest changes of an aging population is skill shortages,” he said.

Still, parliamentary budget officer Kevin Page has questioned the government’s claim that today’s system is unsustainable. He says that with recent changes to the rate of escalation in health transfers to the provinces, the federal government now has fiscal room to continue with old age security as it is now if they choose.

And, more significantly for Harper, Tory caucus members are worried about a backlash from their constituents and are pressing him to be cautious.

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