Rules for government pensions can get complicated
The first thing to know is that you have to apply for them
A number of readers have asked for a sort of Pensions 101 column government pensions, that is, the network of payments by taxpayers to Canadians who have reached official retirement age. Perhaps the most important thing to remember about them is that they do not come automatically. You have to apply for them, one way or another.
The granddaddy of these is the federal old age security pension, OAS, for short. This is, in effect, an award from the taxpayers for reaching the age of 65. Monthly payments go to Canadian citizens or legal residents who have lived at least 10 years in Canada after turning 18. The current maximum pension for those who qualify is $516.96 a month, indexed each quarter to inflation. Smaller payments, calculated according to complicated rules, go to people with fewer years of residence. You don’t necessarily have to continue living in Canada to get this pension, although, again, there are some complicated rules.
This is a costly program, currently costing $35 billion a year. The net cost to taxpayers is less because of the so-called clawback. Payments to pensioners with individual net income above $66,335 are reduced at the rate of 15 per cent of the excess. This formula eliminates an OAS pension at $107,692 net income.
At the other end of the income scale, the guaranteed income supplement (GIS) is available. This tops up an OAS pension going to recipients with little or no other income. Unlike the OAS rules, eligibility and amounts are based on joint and family income where there is a spouse or equivalent partner. Also unlike OAS payments, GIS payments do not count as taxable income.
You don’t always have to make it to 65 to get a federal pension. If you are age 60 to 64 and your spouse or partner receives the OAS pension and the GIS, you may qualify for the prosaically named Allowance, depending on your own income.
Similarly if you are age 60 to 64, have little or no income and your spouse or partner has died, you may qualify for the equally prosaically named Allowance for the Survivor.
For more detailed information, a wealth of material is available online, starting at www.seniors.gc.ca look for Services for Seniors Guide. You can call toll free 1-800-622-6232. All the above programs are provided on a pay-as-you-go basis that is, today’s taxpayers cover the cost of today’s pensions. No money has been set aside by the government to provide for future pensions. In addition, the amounts paid do not depend on earnings while in the workforce. This contrasts with the two other main sources of public pensions for Canadians: the Quebec Pension Plan (QPP) for Quebecers and the Canada Pension Plan (CPP) for residents in the rest of Canada.
The QPP and the CPP are separate plans that do more or less the same thing. They collect compulsory contributions from Canadians in the workforce, put them into a government-run fund and invest the money to earn a return designed to help pay for future retirement pensions. The process produces pensions related to earnings before retirement, but only partly so.
When these plans started in the mid-’60s only a few pensions were being paid out and a flood of money flowed in. The growing surplus motivated Quebec to insist on setting up its own plan, with an eye to making use of this new source of capital to modernize its society. Ottawa less imaginatively lent its surplus money to the other provincial governments.
Inevitably, the surplus of contributions over pension payments dwindled over the next few decades as the number of retirees grew apace. Periodic scares that the money would run out led to increases in required contributions, so that now they are roughly double the original rate. Both governments now invest the restored surpluses in more or less commercial ways, although that didn’t prevent multibillion-dollar losses in their portfolios during the recent market unpleasantness.
Again you must apply for the QPP or the CPP to receive a pension. No application, no payments. Usually you apply when you reach 65 or older. It is possible, though, to apply from age 60 on but your pension will be reduced depending on when you want it to start.
The maximum monthly retirement payment is $908.75. QPP and CPP pensions are indexed to inflation only once a year. Other benefits provided by the plans include a disability pension, survivor’s benefit and a death benefit.
More detail is available online at www.rrq.gouv.qc.ca/en for the QPP, or at www.servicecanada.gc.ca/ seniors for the CPP. Call toll free 1-800-463-5185 for the QPP, or 1-800277-9914 for the CPP.
Email questions to seniors@ sarabethmanagement.com. Write to Hugh Anderson, care of the Arts & Life Section, The Gazette, 1010 Ste. Catherine St. W., Suite 200, Montreal H3B 5L1; or call 514-9872553 and record your question or comment, with your name and phone number. Individual replies cannot be provided.