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.
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