What is OAS and who is eligible for it?

On February 12, 2020, Logan Wealth Management kicked off its 2020 webinar series with guest presenter, Marlene C. Buxton BA, CFP®, CLU®.  Marlene is the principal Fee-Only Financial Planner of Buxton Financial Inc. This presentation was entitled: Should you take CPP and OAS as soon as it’s available?  A Video of this webinar can be found here.

PART 1 OF 3

What is OAS and who is eligible for it?  What is the clawback? What is the relationship between OAS, net income and RRSP contribution deductions?

There is no easy answer to the question Should I take CPP and OAS as soon as it’s available?

Financial planning can be divided into six areas. Each area interacts with all the others so it’s important to look at them in a holistic way.  Decisions around CPP and OAS touch on all six areas.

What is OAS?

Old Age Security is a government social benefit.  Key attributes of OAS are:

  • It is based on residency, not employment or contributions
  • It is a taxable benefit
  • It does not allow for income splitting
  • It is indexed to inflation
  • It is paid for life

The fact that OAS provides a base level of income that is indexed and is guaranteed for life helps put many people at ease, especially when they don’t have a pension plan with their employer.

Who is eligible for OAS?

At this time (2020), the full pension amount is $613.53 per month. Any claw back is based on previous years’ net income.

To qualify for a full pension, you must:

  • Be age 65 or over
  • Be a Canadian citizen, or a legal resident of Canada
  • Have resided in Canada for at least 40 years after turning 18 years of age
  • If you were born on or before July 1, 1952, and you don’t meet the 40 year requirements, you still may qualify for a full pension, but need to check with Service Canada.

To qualify for a partial pension, you must:

  • Have resided in Canada for at least 10 years after turning 18 years of age

The partial pension amount is calculated as a fraction of the full amount based on how many years between 10 and 40 that you were a resident after age 18, where each year qualifies you for 1/40th of the full pension.  For example, if you were resident for the minimum 10 years, you would get ¼ of the full pension; if you were resident for 20 years you would get ½.

Some exceptions may apply even if you haven’t met the above requirements:

  • If you work outside of Canada, for example with the Armed Forces or with a Canadian company, you may be able to use those years in the calculation
  • If you become a non-resident but you resided in Canada for at least 20 years after turning 18, you may still qualify
  • If you do not qualify after becoming a non-resident, your payments will continue for 6 months after the month you depart Canada

What is the OAS clawback?

If you earn over a specified amount you will be required to pay back some or all of your OAS.  The amount you must repay is formally known as the OAS Pension Recovery Tax.  The threshold amounts are set every year and increase with inflation.

For 2020:

  • If your net income is above $79,054 you will have to pay back 15% of the amount over this number
  • If your net income is above $128,137 you will have to pay back the full amount of OAS you receive

Net income and RRSP contribution deductions, and their relationship to OAS benefits

Net income is a calculation of income after certain deductions.  One of the most important deductions is the RRSP contribution. 

If you are early in retirement, still working and started OAS over six months ago, making an RRSP contribution could help bring your net income down so you either don’t meet the clawback threshold, or the amount that must be repaid is reduced.

Once you have been receiving OAS for six months, you cannot stop it and defer payments.  If you realize you should have deferred OAS and you are still within the six-month period, you can contact Service Canada and have it deferred.  It is important to note that you will need to pay back any OAS payments received within those six months. 

What to expect in Part 2 of this webinar blog

In the second part of this webinar blog we’ll address the following questions:

What is CPP and how is it calculated?  Where do CPP contributions come from?  How does CPP sharing (splitting) between spouse’s work?

Disclaimer: Please note that the information presented here is intended as general information only.  It reflects the thoughts and opinions of Logan Wealth Management and should not be construed as investment advice. Please consult your adviser to determine whether this information is applicable to your personal situation.