OAS: What You Need to Know In 2023

Introduction

Old Age Security (OAS) is a significant source of income for Canadian retirees. In this blog post, we’ll explore how OAS works, its qualifications, and the potential benefits, and debunk some common misconceptions. This post is part of a mini-series on OAS, with subsequent articles covering the OAS clawback and strategies to reduce or eliminate it.

How Does OAS Work?

Unlike the Canada Pension Plan (CPP), which is based on mandatory individual contributions, OAS relies on general taxpayer funds from the Canadian Government’s tax revenue. It is not based on your personal contributions.

Qualifying for OAS

OAS eligibility is primarily determined by residency. You must have lived in Canada for at least 10 years after turning 18 to qualify for a partial benefit and at least 40 years for the maximum benefit. Notably, you don’t need to be a Canadian citizen – legal residents can also qualify for OAS.

Misconceptions about OAS Residency Requirements

OAS residency is not a one-time test before turning 65. For example, if you turn 65 and have only lived in Canada for eight years, you may still qualify when you turn 67.

Canada also has Social Security agreements with countries that provide similar pension benefits. This means you may be able to use your foreign pension participation to qualify for OAS if you don’t meet the 10-year residency requirement. More information on these agreements can be found on the Canadian Government’s website.

OAS Benefit Maximum Amounts

The current maximum monthly OAS benefit is $687.57, adjusted quarterly for inflation. This amount can be adjusted up or down depending on your income or partial benefit calculations. Lower-income Canadians may be eligible for Guaranteed Income Supplement (GIS) top-ups, while higher-income individuals may face reduced OAS benefits due to a recovery tax or clawback.

Partial OAS Benefits

If you have lived in Canada for at least 10 years but less than 40 years, you will be eligible for a partial OAS benefit. This is prorated for each qualifying year of residency out of the 40-year maximum. Note that if you are still working and don’t need the income, it may be wise to delay applying for OAS, as your prorated benefit does not improve with additional years of residency.

OAS Payment Options

You can start receiving OAS payments at age 65, or you can defer payments until age 70. For each month you delay after 65, you will receive a 0.6% enhancement, up to a 36% increase at 70. Consider your individual circumstances, such as life expectancy and retirement plans, when deciding whether to delay OAS payments.

Understanding the OAS Clawback

Many people mistakenly believe that earning any income will result in losing their OAS benefits. However, the current income threshold before the clawback is $86,912, double the average income for individuals 65 and older. In fact, less than 5% of Canadians eligible for OAS have to worry about the clawback threshold.

Receiving OAS Payments Outside of Canada

You can receive OAS pension payments while living outside of Canada if you have lived in Canada for at least 20 years after turning 18 or if you have lived and worked in a country with a social security agreement with Canada. Payments may stop if you are out of the country for more than six months after leaving. Note that the Guaranteed Income Supplement cannot be collected if you are outside Canada for more than six months.