Unlike the Canada Pension Plan (CPP), which is funded by contributions from employees and employers, the Old Age Security system (OAS) derives its funding by revenue from government.
OAS is by far the largest federal government’s largest senior benefit programme. OAS Spending accounts for 3.2% of the GDP. The following is based on the Canada’s chief actuary's latest report:
5.8 million: Number of OAS recipients in 2007
9.3 million: Number of OAS recipients in 2030
$52.2 billion: Projected OAS spending this year
$104.3 billion: Projected OAS security spending in 2030
15 million: Number of senior citizens in 2030 (almost 35% of Canada’s population)
3.2%: OAS spending as a percentage of the overall economy in 2030.
21: Average number of years a senior today will receive old age security benefits
The most significant piece of statistic is that one-third of Canada’s population will be aged 65 and above by 2030, which is similar to most developed countries. The key question is whether or not this is sustainable. Assuming only one half the other population is currently working (or one-third), there will be a huge burden on supporting the aged for at least 21 years (from age 65 to 86 based on the statistics above).
The other key aspect apart from the OAS spending is spending on health care and nursing homes , which have also increased significantly. The tax burden is going to ultimately fall to the working segment of the population.
Unless the issues are addressed now, we may face a much leaner OAS programme in the future, or it may cease to exist. To be honest, most senior citizens are generally healthy, mentally capable and are willing to lend a helping hand. We should borrow a page from Japan, where the ‘younger’ elderlies are expected to continue working in various capacities mostly caring for the even older generation in exchange for ‘retirement credits.’ In return, when they are older, they will be taken care of, This will also reduce the need for costly nursing homes.