Friday, January 27, 2012

Steven Harper and Old Age Security

A followup to this post can be found here.

Canadians today live in an age of growing income inequality: the rich are getting richer and the poor are getting poorer (see this post for more on this issue).  However this trend is mostly concentrated among working age people: among seniors there has been a dramatic decline in poverty over the last 40 years.

According to a report by the Conference Board of Canada, poverty rates among the elderly fell from 37% in 1971 to 6% in 1991 and has remained low since.  Canada is a global leader in this respect, an example to be emulated.  Recent remarks by Steven Harper indicate that he intends to reverse this hard won progress.

Our success in reducing poverty among the elderly is widely attributed to our public pension programs: CPP (Canada Pension Plan), OAS (Old Age Security) and GIS (Guaranteed Income Supplement).  

CPP is a contributions based pension plan: money is deducted from your pay cheque and the size of your pension when you retire depends on how much you contributed.  In contrast, OAS and GIS do not depend on contributions or employment history.  Instead they are a kind of basic income benefit granted to (almost) all seniors. OAS and GIS benefits are "clawed back" from people whose total income is sufficiently large, so the benefits go predominantly to poorer seniors. It follows that cuts to OAS/GIS will fall on the backs of people already struggling to get by.

Harper argues that our current seniors benefits are not sustainable, but an article by UBC economist Kevin Milligan questions the degree of fiscal savings achievable through OAS cuts. It seems pretty clear that throwing our seniors into poverty is not the solution to Canada's long run deficit problems.

Another argument that is sure to be made in the coming weeks is that life expectancy is rising so benefits should be withheld until later in life.  It is important to know that life expectancy has been growing much faster for the wealthy than for the lower half of income earners (the main beneficiaries of OAS/GIS) (this is nicely explained by Krugman here and here).  It is a perverse aspect of social security debates that growing life spans of the rich are used to justify cuts for the poor.

More reaction to Harper's plans:

Proposed pension changes called an "attack on seniors" - CBC interview with spokesman for NL Public Sector Pensioners' Association.

Steven Harper's old age pension cuts unnecessary - Toronto Star Column.

Let's debate OAS based on fact, not perception - Globe and Mail

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