As you approach or prepare for retirement, it’s important to know what kind of Old Age Security in Canada is available, and how it fits in with other retirement income. There are three key pillars of income for Canadians in their retirement:
- Old Age Security Canada (OAS)
- Canada Pension Plan (CPP)
- RRSPs/company pension plans
Knowing exactly how much you are likely to receive for CPP and Old Age Security in Canada is essential to plan properly for your retirement.
People sometimes get confused between the Canada Pension Plan (CPP) and Old Age Security (OAS) Canada amounts.
- CPP is a monthly, taxable benefit meant to replace some of your income in retirement. To qualify, you must be at least 60 years old and should have made CPP contributions during your working life. The amount that you receive will depend on your earnings during your working years, how much you contributed to CPP and the age you start receiving it. The maximum CPP pension amount for 2021 is $1,203.75, but most people don’t qualify for that amount. The average CPP pension amount for new beneficiaries in 2020 was considerably less at $689.17. You can find out how much you are likely to receive by logging into your My Service Canada account or by using the Canadian Income Retirement Calculator.
- The Old Age Security pension in Canada is quite different from CPP in that qualification depends on how long you’ve lived in the country. You could receive the OAS pension payment amounts even if you’ve never worked.
Read on to learn more about old age security in Canada.
What is Old Age Security in Canada?
Old Age Security in Canada is a monthly payment that you can start to receive as soon as you turn 65. Like old age pension payments, the money you receive from Old Age Security is also taxable. It is designed to provide Canadian retirees an amount that can potentially cover the basic necessities.
Old Age Security eligibility
Retired Canadians who have lived here most of their life will most likely be eligible for Old Age Security. Here are some of the key criteria that will determine if you qualify:
- At least 65 years of age
- You must be a Canadian citizen or permanent resident and must have lived in Canada for at least 10 years since turning 18.
- To receive the full Old Age Security payments, you need to have lived in Canada for at least 40 years since turning 18.
- If you live outside of Canada, you must have been a Canadian citizen or permanent resident before you left and have lived in Canada at least 20 years since turning 18.
How Old Age Security Works
Typically, enrolment in OAS security is automatic. Eligible recipients receive a written notification from Service Canada by mail the month after turning 64 years old. If for some reason Service Canada does not have enough information to enroll you directly, you may have to apply for the Old Age security pension payment by completing the OAS enrolment form available on the Government of Canada website.
How much is Old Age Security in Canada?
The answer to the question, how much is Old Age Security in Canada, is the same as for the question, how much is the old age pension in Canada? It depends on your personal circumstances and when you start to receive it.
If you’ve lived in Canada for less than 40 years since turning 18, you’ll receive less than the full amount, even if you have Old Age Security eligibility. The full amount of the OAS pension is adjusted quarterly, based on the Consumer Price Index (inflation). For January to March 2021, for example, the maximum Old Age Security payment was $615.37. For every year below 40 that you lived in Canada after you turned 18, you will receive one fortieth less in Old Age Security payments.
How much is Old Age Security for me?
This is an easy calculation: divide the full amount ($642.25 per month for Jan to Mar 2022 maximum monthly payment) by 40 and multiply that by the number of years you have lived in Canada since turning 18. Here are some examples:
| Years spent in Canada since turning 18 | Old Age Security payments | Calculation |
|---|---|---|
| 40 | $615.37 | Full amount |
| 30 | $461.25 | $615.37/40 x 30 |
| 20 | $307.69 | $615.37/40 x 20 |
| 10 | $153.84 | $615.37/40 x 10 |
Deferring Old Age Security
How much is Old Age Security in Canada if you use the option to defer payments? For every month that you defer your Old Age Security in Canada, your payments increase by 0.6%, which works out to 7.2% each year and 36% if you delay receiving Old Age Security payments until you turn 70. What is Old Age Security worth if you defer receiving it for five years? The current maximum OAS pension payment of $642.25 would be worth $873.45.
Old Age Security pension amount
The maximum OAS payment amounts for January to March 2022 is $642.25 per month. To receive Old Age Security, your annual income should be less than $133,141. Typically, this maximum OAS pension amount is reviewed and updated four times a year – in January, April, July and October.
These monthly payments may increase if the government determines that the cost of living has gone up.
Note – The OAS security payment amounts in Canada can never decrease at any point.
What is Old Age Security recovery tax
Since OAS is offered as a means to meet the basic necessities of pensioners, it also uses a claw-back clause to recover part of the OAS pension for higher income individuals.
The OAS recovery tax is applicable:
- If your world income is higher than a certain threshold amount set for each year, and
- You live in a country where the non-resident tax on Canadian pensions is 25% or more.
If the Old Age Security pension recovery tax is applicable to you, you must pay back 15% on the excess income, up to a maximum of the total OAS payment benefit that you received. This deduction is like an additional 15% tax on top of your current tax rate.
The minimum and maximum income recovery threshold limits for OAS pension recovery tax for 2021 is $79,845 and $129,757. The corresponding amounts for 2022 are $81,761 and $133,141.
Calculating the OAS pension recovery tax is simple. If your income in 2021 was $95,000, then your repayment amount will be 15% of the difference between $93,000 and $79,845 i.e., $1,973.25
How to apply for OAS pension
How to apply for old age pension in Canada (CPP) is very different from how you apply for the OAS pension. Some retirees are enrolled for Old Age Security automatically by Service Canada. Soon after you turn 64, the government will send you a letter to either inform you that you’ll be enrolled automatically, or that you need to apply for it.
You can apply via your My Service Canada account or mail the application to Service Canada. If you want to defer receiving your OAS pension payments, you can do this through My Service Canada or by completing and returning your automatic enrolment letter.
A better way to improve your retirement income
The Old Age Security payment in Canada is meant to help retirees out financially. However, even the maximum payment is not a great deal of money. If you don’t have much coming in from a company pension plan, RRSPs or the CPP, you may find that retirement is a financial struggle.
If you’re a Canadian homeowner aged 55+, the CHIP Reverse Mortgage from HomeEquity Bank could be the perfect solution for increasing your retirement income. You can borrow up to 55% of the value of your home with no regular mortgage payments. You only pay back what you owe when you sell your home or move out.
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