How to Minimize its Reduction

By Susan Gottlieb

 

As you approach age 65, you may have questions about the Old Age Security (OAS) program. This article discusses the OAS pension and related benefits you may be entitled to receive. It also covers when these benefits may be reduced and strategies that may help you minimize the reduction. Please note that any reference to a “spouse” in this article also refers to a common-law partner.

What is OAS? 

OAS is a monthly federal retirement benefit payable for life to individuals who are age 65 and over. You don’t have to make contributions to receive OAS retirement benefits; this program is funded through general tax revenues paid to the Government of Canada. 

Eligibility for OAS 

If you’re living in Canada, you must: 

  • be 65 years old or over; 
  • be a Canadian citizen or a legal resident at the time your application is approved; and 
  • have lived in Canada for at least 10 years since the age of 18. 

 

If you’re living outside of Canada, you must: 

  • be 65 years old or over; 
  • have been a Canadian citizen or a legal resident of Canada on the day before you left Canada; and 
  • have lived in Canada for at least 20 years since the age of 18. 

 

If neither of the above scenarios applies to you, you may still qualify for an OAS pension, a pension from another country or from both countries, if you have: 

  • lived in one of the countries with which Canada has established a social security agreement; or 
  • contributed to the social security system of one of the countries with which Canada has established a social security agreement. 

 

Applying for your OAS pension 

Many Canadians are automatically enrolled for OAS. If you’ve been automatically enrolled, you’ll receive a notification letter from Service Canada the month after you turn 64. If the information in the letter you receive is accurate and you don’t want to defer your pension, you don’t need to take any action. If you don’t receive this notification, you have to apply for your OAS pension. 

The earliest you can apply for OAS is 11 months before your 65th birthday (i.e., the month after you turn 64). If you’ve already reached age 65 and you want your OAS pension to start immediately, you should apply as soon as possible. Service Canada can only provide retroactive payments for up to a maximum of 11 months from the date they receive your application. 

To apply, complete, sign and mail the application form as well as any necessary documents to the Service Canada location nearest you. You can obtain the application form on Service Canada’s website. 

Receiving a full or partial OAS pension 

The amount of your OAS pension depends on how long you’ve lived in Canada after age 18. 

 

Full pension 

You’re eligible to receive a full OAS pension if you fall into one of the following two categories: 

  1. You’ve lived in Canada for at least 40 years after turning 18; or 
  2. You were born on or before July 1, 1952, and
    1. on July 1, 1977, you lived in Canada; or 
    2. after you turned 18, you resided in Canada for a period of time prior to but not on July 1, 1977; or 
    3. on July 1, 1977, you were in possession of a valid Canadian Immigration Visa. 

You must also have lived in Canada for the 10 years immediately before your OAS application was approved. If you didn’t live in Canada during that 10-year period, you may still qualify for a full OAS pension, if: 

  1. you lived in Canada for at least one year immediately before your OAS pension was approved; and 
  2. since you turned 18, you lived in Canada for at least three years for every one year of absence from Canada during those last 10 years. For example, if you lived outside of Canada for two of the last 10 years before your OAS pension was approved, you must then have lived in Canada for at least six years after the age of 18. 

 

Partial pension  If you don’t qualify for the full OAS pension and do not wish to wait until you do, you may still qualify for a partial OAS pension. To qualify for a partial OAS pension, on the date your OAS application is approved, you must have lived in Canada for at least 10 years but less than 40 years after you turned 18. If you have lived in Canada for less than 20 years on the date on which your application is approved, you must be living in Canada on the day preceding the day on which your application is approved. 

A partial OAS pension is calculated as 1/40th of the full OAS pension for each complete year you lived in Canada after age 18. For example, if you lived in Canada for 20 years after your 18th birthday, you may qualify to receive 20/40ths or half of the full OAS pension. 

 

OAS if you’re over age 75 

In July 2022, the OAS pension will increase by 10% for those who are age 75 and over. This permanent increase will apply regardless of whether you receive a full or a partial OAS pension, and will apply for the period that begins in the month after the month in which you turn 75. 

 

Understanding the OAS pension recovery tax 

Generally, if your net income before adjustments (on line 23400 of your personal income tax return) exceeds a certain minimum threshold for the year, you may have to repay all or part of your OAS pension. This is referred to as the OAS pension recovery tax, more commonly known as OAS clawback. 

 

Susan Gottlieb is Senior Wealth Advisor with RBC Dominion Securities Inc.

Feel free to request an e-copy of the entire 6-page article from me at susan.gottlieb@rbc.com or reference at www.susangottlieb.com

 

This article may contain strategies, not all of which will apply to your particular financial circumstances. The information in this article is not intended to provide legal, tax or insurance advice. To ensure that your own circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified tax, legal and/or insurance advisor before acting on any of the information in this article.

This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc. (RBC DS)*, RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N IC), RBC Global Asset Management Inc. (RBC GAM), Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliates, RBC Direct Investing Inc. (RBC DI)*, RBC Wealth Management Financial Services Inc. (RBC WMFS) and Royal Mutual Funds Inc. (RMFI). *Member-Canadian Investor Protection Fund. Each of the Companies, their affiliates and the Royal Bank of Canada are separate corporate entities which are affiliated. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and mutual fund representatives of RMFI, Investment Counsellors who are employees of RBC PH&N IC, Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC DS. In Quebec, financial planning services are provided by RMFI or RBC WMFS and each is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC DS. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies or RMFI, clients may request a referral to another RBC partner. Insurance products are offered through RBC Wealth Management Financial Services Inc., a subsidiary of RBC Dominion Securities Inc. When providing life insurance products in all provinces except Quebec, Investment Advisors are acting as Insurance Representatives of RBC Wealth Management Financial Services Inc. In Quebec, Investment Advisors are acting as Financial Security Advisors of RBC Wealth Management Financial Services Inc. RBC Wealth Management Financial Services Inc. is licensed as a financial services firm in the province of Quebec. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, RBC WMFS, RBC DI, Royal Bank of Canada or any of its affiliates or any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. ®/TM Registered trademarks of Royal Bank of Canada. Used under licence. © 2022 Royal Bank of Canada. All rights reserved. NAV0114 (01/22)