Katherine Gustafson is an author and personal finance expert from Portland, Oregon. She writes about investing for Wealthsimple as well as having written for Forbes, Business Insider, TechCrunch, and LendingTree. Katherine is a past recipient of the Izzy Award for outstanding achievement in independent media. She has a BA from Amherst College and an MA from Boston University.
Growing old in Canada has its benefits. The country has a robust public pension system that helps retirement-age residents continue to enjoy a thriving life as they age.
According to the Melbourne Mercer Global Pension Index, Canada’s pension system gets a “B” grade on a scale of A to E, along with quite a few European countries, Singapore, New Zealand, and Chile. Its pension assets make up a very high percentage of its GDP as compared to other countries in the study.
Canada’s retirement income system comprises three parts: the Old Age Security (OAS) pension, the Canada Pension Plan (CPP), and Employment Pension Plans/Individual Retirement Savings. Read on to learn more about OAS and what you can expect when you hit the right age.Wealthsimple Invest is an automated way to grow your money like the worlds most sophisticated investors. Get started and we'll build you a personalized investment portfolio in a matter of minutes.
What is Old Age Security (OAS)?
OAS is a universal benefit funded by general tax revenues. It provides a taxable monthly payment to people aged 65 and over.
Unlike CPP, which is a defined benefit pension plan that people pay into via their paychecks, OAS is a government program that is not affected by employment history. This means that you may be able to receive OAS benefits even if you have never worked or are currently still working. This check rolling in the door every month is a lifeline for many seniors.
There are three types of OAS benefits that you may be able to receive in addition to the OAS pension:
These supplemental OAS benefits are designed to help low-income residents afford retirement.
How does OAS work?
You become eligible for OAS at age 65. The amount of OAS you receive is determined by the number of years you’ve lived in Canada after you turned 18. You qualify for the full pension if you’ve resided in Canada for at least 40 years since that age. If you can’t or don’t want to wait until you are eligible to receive the full OAS pension, you can also qualify for a partial pension—you receive 1/40th of the full OAS pension for each complete year you resided in Canada after turning 18.
Canadians who work outside Canada for Canadian employers, such as a Canadian bank, are able to count their time working abroad as years of residence in Canada for the purposes of calculating OAS. The caveat is that you have to return to Canada within six months of the employment ending in order for it to count, or you must have turned 65 while working in that job.
There is a maximum net income above which you are no longer eligible for the OAS. Since the OAS is considered taxable income, you will have to pay recovery tax if your net income for a given year is higher than the net world income threshold set for the year. If an overly high income prevents you from receiving your OAS pension, you can wait to apply for it until after you stop working and become eligible when your income drops.
There are also maximum income limits for the other OAS benefits, and these are much lower limits than for the OAS pension since the supplemental benefits are designed to help lower-income people with retirement costs. The level of these benefits you receive depends on your marital status.
You can defer your OAS pension for up to five years after the date you become eligible. Doing so allows you to receive a higher monthly amount once you do start receiving the pension. Your pension payment will jump up by 0.6% for each month you defer it, with a maximum of 36% at age 70. You will not be eligible for GIS and your spouse or common-law partner will not be eligible for the Allowance benefit during the deferral.
If you have started receiving your OAS pension within the last six months but then decide you’d rather defer it to receive higher payouts at a later time, you can cancel your pension with a written request. You will have to repay the amounts you received so far within six months of the cancelation notification. You can then reapply at a later date and start collecting higher pension amounts.
How much can you get from OAS?
How much you receive from your OAS pension depends on how long you’ve lived in Canada after age 18. The full benefit for which you’re eligible after 40 years of Canadian residence is the same for everyone who is eligible regardless of marital status.
This amount is adjusted quarterly in January, April, July, and October to account for cost-of-living increases. You can find the most up-to-date benefit rates in this table of OAS payment amounts. For many, the full pension amount is not enough to live on but helps with bills and provides some security during one’s golden years.
To receive a partial pension, you need to have lived in Canada for at least 10 years after you turned 18, and you must currently reside in Canada as you draw the pension. You will receive some fraction of the full amount corresponding with your number of years of residence. Each year qualifies you for 1/40th of the full pension. So if you’ve been in Canada for 20 years when you apply, you’ll receive 20/40 (or 1/2) of the full pension amount.
On June 2019, the Canadian government increased OAS payments and rolled back the age of eligibility from 67 to 65. These increases included an annual bump in the GIS benefit of $947 for single seniors with the lowest income.
Who is eligible for OAS?
You are eligible to apply for OAS pension and benefits if you are a legal Canadian resident who’s at least 65 and who has resided in Canada for at least 10 years since age 18. Additionally, your net income must be below the maximum amount for a given benefit is eligible to apply for OAS pension and benefits. Your eligibility is not affected by your employment history; you can receive an OAS pension even if you’ve never worked.
If you are currently residing outside Canada, you are eligible for OAS pension and benefits if you are 65 years old, were a Canadian citizen or legal resident on the day before you left Canada, and have lived in Canada for at least 20 years since you turned 18.
If you don’t fit either of these descriptions, you might still qualify if you have lived in or contributed to the social security system of a country with which Canada has established a social security agreement.
To be eligible for a full pension you must have resided in Canada for at least 40 years since your 18th birthday. Additionally, if you were born on or before July 1, 1952, there are some other eligibility requirements that apply. To be eligible for a partial pension you must have resided in Canada for at least 10 years since your 18th birthday and currently reside in Canada.
How do you apply for OAS?
Since 2013, the Canadian government has been automatically enrolling eligible seniors to receive OAS pension, and in December 2017, they expended automatic enrollment to include the GIS.
Those who can be automatically enrolled will receive a notification letter the month after their 64th birthday. If you do not receive such a letter, you will need to apply for the pension or benefits.
You can apply online or by mail at most 12 months before the date on which you want your pension to kick in. You must currently live in Canada to apply online. If you live abroad or prefer using mail, fill out a paper application and send it to Service Canada. You have the option to request retroactive payments for up to 11 months or reaching back to one month after your 65th birthday, whichever of those is the shortest period.
You’ll need to provide a range of personal information when you apply online for your OAS pension and the GIS:
your Social Insurance Number (SIN)
the SIN and date of birth of your spouse or common-law partner, if applicable
address information since age 18
the date you want to start receiving your pension
You can receive payments by direct deposit or by cheque. If you’d like to receive monthly amounts by direct deposit you must supply your banking information when you apply to enable digital payments. To receive cheques, you must mail a completed OAS and the GIS Application (ISP-3550) and certified true copies to Service Canada. Alternately you can bring them to a Service Canada office and have an employee certify your documents free of charge.
Be strategic about your OAS
Since the amount you receive in OAS pension depends on how long you’ve been in living in Canada, it’s a good idea to plan ahead about when you may want to start your benefits. If you can delay receiving them until as close to the 40-year timeframe as possible — or even defer them until later — then you’ll end up with more income.