Canada’s Old Age Security system needs reform, and governments should consider reducing tax subsidies for pension plans and RRSPs to fund better basic benefits, according to a new report from the Canadian Centre for Policy Alternatives.

The report notes that under-funded workplace pensions, and lost RRSP value, may mean that the OAS system faces greater pressures in the future.

“Workers may lose their pensions or find they will get only a portion of what was promised if their employer goes under with an under-funded plan. As well, Canadians who have been saving for retirement through RRSPs have found the value of their savings has dropped sharply. And if they are close to retirement age, they may have no time left to wait for the market to bounce back again,” the report says.

“Failures in the third tier of the system may place greater stresses on the basic tier to ensure the economic security and dignity of Canadians in retirement,” the report adds.

The report key calls for:

• increases to the Guaranteed Income Supplement for individuals;
• indexing OAS/GIS to wages instead of to prices;
• modifying the residency requirements for OAS to make it easier for immigrants to qualify for benefits; and
• removing discriminatory provisions from the allowance program.

“Old Age Security is an important source of income for today’s seniors — particularly for women. However, maximum combined benefits from OAS and GIS fall below the poverty line for single individuals,” says the report’s author, pension expert, CCPA research associate, Monica Townson.

To offset the cost of reforming the OAS system, the report recommends that the government should consider reducing taxpayer subsidies to RRSPs and workplace pensions that benefit a minority of Canadians — only 38% of employed Canadians have a workplace pension, and only 31% are making RRSP contributions, it notes.

“A reduction of the tax subsidies to the third tier of the retirement income system… would free up funds to improve benefits in the first tier of the system,” it says; pointing out that the net cost in lost tax revenues of subsidies to registered pension plans and RRSPs in 2010 is estimated to be $28.9 billion — greater than the total cost of OAS benefits, which are estimated at $27.6 billion for the 2009-10 fiscal year.

IE