Growing old is tough. You start worrying about a bunch of things: creaking joints, lifestyle diseases, fading eyesight and hearing among many other things.
One thing you shouldn't have to worry about though is your OAS payments, which is what I'm going to cover in this article.
We'll go over what old age security pension is, OAS payment dates, if you're eligible for OAS and many other elements.
As you can tell by the table of contents below, I'd consider this an all-in-one guide to Old Age Security. So simply select a topic that you're curious about and get reading!
Canada takes good care of its retirees
Living in Canada means you don’t have to worry about money a lot considering that the country does its best to take care of its older population.
Mercer’s 13th edition of the Global Pension Index report puts Canada at number 7 with a score of 69.8.
This is very heartening when you take into account the widespread economic impact that COVID-19 has had on retired citizens and the long-term implications on them.
Life expectancies are going up and there is rising pressure on public resources. But Canada is only second to Finland worldwide with 192.5% of its GDP invested in retirement funds, as of 2020.
Canada’s pension system is made up of three parts:
- Canada Pension Plan (CPP payments)
- Old Age Security (OAS payments)
- employment pension plans/individual retirement savings.
Here, we are going to look at the OAS system in detail.
Note: When we talk about partner in the article below, we are referring to a spouse or common-law partner.
So lets get started first with what exactly old age security is.
What is OAS (Old Age Security)?
OAS is a monthly supplementary pension plan by the government for low-income senior Canadians who are aged 65 or older.
OAS is funded by tax revenues and unlike the CPP, the OAS doesn’t depend on your employment history, it depends on the number of years that you have been residing in the country.
A Canadian is eligible for the OAS even if they are currently working or receiving income via dividends from buying stocks. The OAS has three benefits under it:
- Guaranteed Income Supplement
- Allowance for the Survivor
OAS payments are sent by cheque, or direct deposit to your bank account.
How Much is the OAS Payment for 2022?
The maximum OAS retirement income payout every month is $642.25. This OAS pension amount is for the period April-June 2022.
The OAS is calculated every January, April, July and October after taking into account cost-of-living increases.
OAS Payment Dates for 2022
Here is a simple schedule highlighting the OAS payment schedule for 2022:
- January 27th 2022
- February 24th 2022
- March 29th 2022
- April 27th 2022
- May 27th 2022
- June 28th 2022
- July 27th 2022
- August 29th 2022
- September 27th 2022
- October 27th 2022
- November 28th 2022
- December 21st 2022
How Does OAS Work?
To get full OAS benefits, you should have lived in Canada for 40 years since the age of 18.
If you need the money before you meet the minimum year eligibility, you will qualify for a partial pension.
This means you will get 1/40th of the full pension amount for every year that you have lived in Canada since the age of 18.
Who is Eligible for the OAS?
To be eligible for an OAS pension, you must be:
- At least 65 years of age
- A Canadian citizen or a permanent resident of Canada (or landed immigrant) when your pension application is approved
- You should also have lived in Canada for at least 10 years since the age of 18
If you are applying from outside the country:
- At least 65 years of age
- A Canadian citizen or a legal resident when you left Canada
- Have lived in Canada for at least 20 years since the age of 18
You are eligible for the OAS once you turn 65 years old. However, you can choose to defer the OAS until you turn 70 years. More on the benefits of that later.
You are also eligible for OAS despite not meeting the residency requirements if you have been working for Canadian employers outside Canada like the Canadian Armed Forces or a bank.
To qualify for OAS payments, you need to have returned to Canada within 6 months of ending your employment or have turned 65 years old while still employed and maintained a residence in Canada during your time outside of Canada.
You are also eligible for the OAS payments if you have lived in a country, like Portugal, with whom Canada has established a social security agreement.
What is the Max I Can Make and Still Get OAS Payments?
The financial criteria for OAS are that your annual income must be less than $133,141.
This is the criteria for receiving OAS between April – June 2022.
How Do I Apply to Receive OAS Payments?
In most cases, you do not need to apply to receive OAS payments. However, according to Canada.ca:
“In some cases, Service Canada will be able to automatically enroll you for the OAS pension. In other cases, you will have to apply for the Old Age Security pension. Service Canada will inform you if you have been automatically enrolled. In most cases, you do not have to apply to get this benefit.”
Can I Apply Online for OAS?
If you live in Canada currently, you can apply online. If you live abroad, you have to fill out a paper application and mail it to Service Canada. You can apply for your OAS 12 months before the date when you want your pension to start.
Is OAS Taxable?
Yes, it is. Old age security is taxed much like normal income, meaning it doesn't qualify for the benefits of say the dividend tax credit or capital gains.
This is something you need to take into consideration when planning your income in retirement.
Is OAS Based on Family Income?
No, OAS is not based on family income but on individual income.
A smart way to ensure that a couple gets full OAS is to split your combined income into below $79,054 each.
This means that if your household income is around $158,108, both partners would qualify for full OAS.
OAS payments through the latter half of the year will be clawed back based on your income in the previous year.
The reasoning for clawing back payments made in the second half of the year is because your most recent tax filing is usually done at this point.
If your income is over $79,054, 15% of your OAS will be clawed back (clawback) between April-June 2021.
Now, this is a little tricky. So, pay attention.
The OAS pension recovery tax or clawback operates a little differently. According to this report on taxtips.ca:
“If you start receiving your pension in the first 6 months of the year, the amount will be reduced based on your income as per the tax return filed in the 2nd preceding taxation year. If you start receiving your pension in the last 6 months of the year, the amount will be reduced based on your income as per your tax return filed in the preceding taxation year.
Example: OAS payments beginning in January to June 2021 will be clawed back based on your income as per your 2019 tax return. OAS payments beginning in July to December 2021 will be clawed back based on your income as per your 2020 tax return. However, when your 2021 tax return is filed, the OAS clawback is recalculated based on your 2021 taxable income, so you may recover some of the tax.”
The maximum annual income threshold amount changes every year. If your net annual income exceeds this amount you have to pay back part or all of your OAS pension.
For 2022, the threshold amount is $79,054.
How is the OAS Clawback Calculated?
The OAS recovery tax is calculated in this manner:
For every dollar over the maximum threshold limit, you have to pay back 15 cents. This tax is recovered by reducing your OAS payments.
Let's see an example in action.
The threshold for the clawback tax for 2022 is $79,054. Let's assume your income in 2022 was $100,000.
The clawback would be 15% of the difference between $100,000 and $79,054.
$100,000-$79,054 = $20,946
15% of $20,946 = $3,141.90
If you live outside Canada and receive OAS pension, you must also pay the non-resident tax. This tax is deducted from monthly OAS pension payments.
If the reductions in your OAS cause hardship, you can write to the Canada Revenue Agency to review your situation.
They review each application on a case-by-case basis.
How to Effectively Reduce Your OAS clawback
There are many ways to reduce your OAS clawback. But here are 4 key strategies to reduce OAS clawback.
Invest in a TFSA
Tax-Free Savings Accounts allow Canadians to earn from their investments, whether it be in the form of a dividend or capital appreciation, tax free. This means that it will not count towards your annual income, which in turn will reduce your OAS clawback.
Contribute to your RRSP
Many Canadians make the mistake in thinking once they've retired, their RRSP provides no benefits. However, you can continue to contribute to one until the calendar year in which you turn 71. RRSP contributions made will lower your overall net income, and as such, can lessen your OAS clawback.
If you remember from above, we mentioned that OAS payments are based on individual income, not family income. So if you are earning high income, splitting your income with your common law or spouse can reduce your OAS clawback.
Defer your OAS payments
Deferral of your OAS payments not only will save on your OAS clawback, but it can also make your OAS payments higher when you do claim them. So if you don't need the income now, this is something to consider.
Of note, you could consider deferring your CPP as well, as this adds to your taxable income, thus pushing you higher towards that OAS clawback threshold.
Let's Go Into More Benefits of Deferring OAS
You can defer OAS until you turn 70, i.e. for five years after you turn 65.
This lets you claim a higher amount when you turn 70 and start receiving the OAS. You will receive an extra 0.6% for every month that you have deferred it, until the maximum of 36% at age 70.
A key thing to note however, if you choose to defer OAS payments, you will not be eligible for the Guaranteed Income Supplement, and your spouse or common-law partner will not be eligible for the Allowance benefit during the deferral.
There is no advantage in delaying payments after the age of 70.
What is the Guaranteed Income Supplement?
The Guaranteed Income Supplement (GIS) is a monthly payment you receive if you are at least 65 years old, live in Canada and receive OAS payments.
The financial criteria for receiving OAS is:
- You are single, divorced and widowed and your annual income is below $19,464.
- Your annual income plus the annual income of your partner is below $25,728 and your partner receives full OAS payments or your combined annual income is below $46,656 if your partner does not receive an OAS pension and Allowance or your combined annual income is below $46,656 but your partner receives the Allowance
You have to apply for the GIS at the same time as you apply for the OAS pension.
What is the Maximum Amount You Can Receive Through GIS?
If you are single, divorced and widowed and your income is below $19,464, you will receive a maximum amount of $959.26 a month.
If your annual income plus the annual income of your partner is below $25,728 and your partner receives the full OAS pension, you will receive $577.43 every month.
If your partner doesn’t receive OAS or pension and your combined annual income is less than $46,656, you will receive $959.26 every month.
If your partner receives the Allowance but your combined income is lower than $35,616, you will receive $577.43 every month.
What is the Allowance?
The Allowance is a monetary benefit available to low-income individuals aged 60 to 64 who are the spouse or common-law partner of a Guaranteed Income Supplement (GIS) recipient.
If your partner receives GIS and the max OAS payments, you are eligible for a payout of $1,219.68 every month.
Your combined annual income (your income plus your partner’s income) must be less than $36,048.
Residency criteria for the Allowance is that you have to be a Canadian citizen or a legal resident who has lived in Canada for at least 10 years since the age of 18.
If your partner doesn’t receive the OAS or GIS because they are incarcerated, you will receive the allowance as long as you meet the age and residency criteria.
When you turn 65, your Allowance will stop, and OAS and GIS will start.
What is Allowance for the Survivor?
Allowance for the Survivor is a monetary benefit that is available to low-income individuals aged 60-64 whose partner has passed away.
You qualify for this benefit if:
- You are Canadian or a legal resident, reside in Canada or have resided in Canada for at least 10 years since the age of 18
- Your partner has died
- You haven’t remarried or entered into a common-law relationship, and your annual income is less than the maximum threshold
- Your annual income must be less than $26,256. The maximum monthly Allowance for the Survivor you will receive is $1,453.93 from April-June 2021
What is OAS Eligibility for Immigrants?
If you are a sponsored immigrant who has lived in Canada for less than 10 years after the age of 18, you are not eligible for either the GIS or Allowance or Allowance for the Survivor benefits.
The only exceptions to this rule are if your sponsor dies, files for bankruptcy, is incarcerated for over six months or is convicted of abusing you. If you are a non-sponsored immigrant, regular rules apply to you.
OAS (Old Age Security) Conclusion
The OAS and its allowance programs are a great tool to ensure that you don’t suffer financial hardship in your golden years.
You should plan your retirement accordingly to get the most out of these benefits.
Ideally, you should delay accessing these benefits until you hit the 40-year residency mark or the age of 70.