OAS Benefit – Are pensioners better off with indexation or tax reduction?

The most recent quarterly revision of OAS and GIS benefits means that pensioners will receive an increase of 0.3 percent per month this quarter. According to the HRSDC publication Just the Facts – Pensions, Benefits and Seniors:

Old Age Security benefits, consisting of the basic pension, the Guaranteed Income Supplement (GIS) and the Allowances, are revised quarterly, in January, April, July and October, using the CPI for the previous quarter. OAS benefits will be increased by 0.3 percent from the last time the rates were adjusted which was in October 2008. In October 2008, OAS benefits were indexed by 2.2 percent in response to a significant increase in the CPI. In order for OAS benefits to be indexed again, the CPI needed to exceed the peak that occurred at that time. This has only happened now.

The CPI formula used by Statistics Canada to calculate CPP, OAS and GIS is complex and may not reflect the actual ‘basket of goods’ that pensioners purchase. We questioned the adequacy of using the CPI formula in an earlier post PENSION INDEXATION – is the current method adequate?

Currently the OAS average monthly benefit is $489.12 and the maximum monthly benefit is $518.51. Check this federal government link for more information: http://www.cra-arc.gc.ca/menu-eng.html. Although some pensioners have indicated they received a meagre increase of about $2 (more or less) per month in the OAS payment for the current quarter there doesn’t seem to be a ripple of discontent coming from that segment of our population.

Concerns about the accuracy of using the Consumer Price Index have also been raised in other countries. For example, an article on inflation at EDECON identifies a number of problems with the CPI measure.  These problems are certainly applicable to Canada. The first problem identified by EDECON should clearly resonate with fixed income pensioners:

”CPI measures only the cost of living for an average household. The top and bottom 4% income brackets are not included; nor are pensioners.”

Other relevant concerns raised in the Edecon article have to do with the ‘sampling’ and also the predictable  ‘basket of goods’ used in the CPI formula. Although we are not economists we would like to suggest that the government focus more on tax relief measures for pensioners rather than using a flawed formula that does not reflect the actual cost of living expenses for this vulnerable group of citizens.

As noted above the annual increase in OAS benefit is derived from a formula used to calculate the Consumer Price Index (CPI). Given the concerns about the adequacy of this formula we need to ask some relevant questions with regard to the formula used in this calculation:  Is the ‘basket of goods’ used in the formula representative of the ‘basket of goods’ seniors consume? Is it possible that the formula is flawed hence the result is skewed?  Also, just how much is it costing the government bureaucracy/tax payers to process and distribute this paltry increase in the OAS benefit? Surely the bureaucratic cost of providing that service could be better spent by applying it to tax reduction for pensioners.

This conundrum of using the CPI to calculate the pension benefits is food for thought. Would it be more beneficial to pensioners on fixed incomes to have tax relief versus the using the CPI formula? We look forward to hearing your thoughts on the question of the accuracy of the CPI formula to calculate OAS benefits. We also are interested in your comments on the alternative of reducing the tax burden for pensioners by eliminating the bureaucracy employed to process and distribute this paltry increase every quarter.

_____________________________________

Useful link

An article questioning the adequacy of using the CPI formula that is worth checking can be accessed at this link: Budget alert:The dangers of using the Consumer Price Index rather than the Retail Price Index

 

Advertisements

About Golden Wave Movement Canada

The Golden Wave Movement is a made up of engaged individuals who have serious concerns about the increasing challenges retirees surviving on modest pension incomes face nowadays. While our main purpose is to raise awareness of the financial difficulties faced by this vulnerable group of citizens, we also intend to raise awareness regarding challenges related to their physical, emotional and psychological well-being.
This entry was posted in Baby boomers, Basket of goods, Consumer Price Index, Cost of Living, CPP, GIS, Golden wave, Guaranteed Income Supplement, Indexing pensions, Old Age Security, Pension Indexation, Pension Reform, Pensioners, Seniors demographic, Statistics Canada, Tax allowances and tagged , , , , , , , , , . Bookmark the permalink.

12 Responses to OAS Benefit – Are pensioners better off with indexation or tax reduction?

  1. Carolyn says:

    Halloween came early! Seems that seniors are getting a ‘trick’ and certainly not a ‘treat’. An increase of barely $2.00 or less for some seniors!!! I must be one of the lucky ones…. my increase was a whopping $3.51 Maybe they made an error! Why on earth do they use the complicated CPI formula to calculate benefits? Those of us receiving OAS are growing in number and will represent a sizeable voting block. We need to mobilize to get a fairer deal on all pension benefits

    Like

  2. Pat R. says:

    I agree in principle with what you are suggesting re. reducing tax burden for seniors on fixed incomes. Seems an attractive option. However, if the government reduces the bureacracy a lot of people will be out of work. Unemployment will rise and that will sink us into a deeper financial crisis that will last for a long time. I am at a complete loss for words at what we can do in this ongoing recession. As usual the top segment of citizens (including the financial industry and corporate elites) have not. and will not be affected .

    Like

  3. EvanR says:

    Who are these people in the government that come up with this weird way to calculating OAS benefits? And just for an increase of about $2 per month! Providing some tax relief to struggling pensioners is much less complicated.

    Like

  4. George says:

    We seniors are a growing voting block and we have to get ourselves organized. I don’t have a company pension and earned a modest wage most of my all my life. So I could not save much for retirement. That increase we seniors got is shameful. It has to be a mistake.

    Like

  5. Davilon says:

    The increase of 1.55 won’t buy a bus ticket in any city in Ontario, it doesn’t even buy a newspaper but the Government spent millions sending the increase to everyone over 65. How ridiculous is this? Instead, how about reducing the pensioners income taxes by 0.30%? Contact your MP & tell him what you think.

    Like

  6. JohnF says:

    It is apparent that the bureacracy processing OAS benefits is bloated and expensive to run. That quarterly increase can barely buy a decent loaf of bread or a bus or subway fare. The govt. should look at a simpler and less costly method such as integrating those OAS increases into the existing taxation system. I suspect that a ‘cost benefit analysis’ would reveal the current method produces a very poor ROE. I wonder how much the govt would save if they moved away from the complicated CPI method in this instance …. probably millions of $$$! I am not advocating eliminating the CPI as it has its uses for various other statistical purposes. Although PatR suggested this might result in increased unemployment among public service employees this alternative should be considered as it will not increase the growing federal deficit which is keeping us trapped in this recession.

    Like

  7. Lynda says:

    As usual the Government spends millions of our dollers to screw the people. They do this to the ones that can least aford it. They should be helping the seniors to have the last part of there lives easer to live. I think a $2.00 increase is an insult.

    Like

  8. Shirley says:

    How can it be justified that pensioners get about $2 increase for this quarter ? That CPI calculation or indexation is not applicable or realistic when calculating pension benfits. That article by EDECON gives a good critique of the relevance and accuracy of using the CPI. All these governments around the world gave the fraudulent corporations and those CEO billions of taxpayer dollars — what if government used the CPI method to calculate what bailout the corporations and financial industry parasites should have received. And the important variable should be thier performance!!!

    Like

  9. Esa Kuusisto says:

    The posted comments definetly suggest the CPI is an antiquated method of indexing anything. Low income people must get the tax breaks, not corporations who get fat on “defense” contracts.
    Tax dollars are wasted on attack fighters such as the F-35.

    Like

  10. ArtB says:

    This is unbelievalbe that I get less than a $2 increase in OAS this quarter. Pensioners should not be made to pay for the economic crisis they did not cause. As we all know it is those fraudsters in the financial industry who created this crisis … .and they were rewarded with generous bonuses. I have lost so much of my modest retirement savings in recent times and will never ever catch up unless I lived for another hundred years. Pensioners are now being punished in order to protect the profit margins of those who will never have to rely on CPP. What kind of a society do we want if we cannot guarantee a dignified, (not extravagant or lavish) lifestyle for our seniors!

    Like

  11. WaltR says:

    Poor government planning, lack of oversight in the financial industry and ignoring population trends plays huge role in the pension crisis. And now this confusing way to calculate the CPI. That’s capitalism for you. A word of advice to the younger ones —- the Capitalist system is a system that operates on the basis of profit and not need. Those who see their retirement not too far on the horizon must, yes must, get rid of all their debts as soon as they can. Young people must take heed and prepare as best they can to look after their own welfare in retirement and not trust financial institutions.

    Like

  12. Iris says:

    The government should be looking at initiatives to create a more diginfied lifestyle for seniors. I totally agree with the comment that money is wasted on those fighter planes. What is Canada going to do with those fighter planes anyway? If there is money for fighter planes surely they can find something for needy seniors, not to mention the veterans. I have to wonder who own those companies making all this military stuff and they are probably seasoned lobbyists and their companies enjoy a healthy bottom line.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s