Policy Forum: Better Late Than Never—Policy Options for Modernizing OAS and Retirement Tax Credits

Canada's retirement income system requires modernization. In 2025, old age security (OAS) will deliver over $18,000 annually to retired couples with household incomes of $182,000, while still leaving almost 400,000 older Canadians below the poverty line. At a cost of $86 billion per year, OAS is the largest federal transfer and the biggest source of new spending growth, driving the operating deficit. Younger Canadians now contribute 20-40 percent more in income taxes toward seniors' healthy retirements than baby boomers once paid, while programs for housing, child care, and post-secondary education receive relatively little new money. Drawing on the reform blueprint advanced by Prime Minister Chrétien in the mid-1990s, a recent auditor general review, and new microsimulation modelling, this article evaluates six policy options to recalibrate OAS recovery thresholds and phase out the age and pension income tax credits. The analysis shows that redirecting benefits from financially secure retirees with six-figure incomes could free up $14 billion to $19 billion annually—enough to eliminate seniors' poverty, expand investments in younger generations, and reduce the deficit without raising taxes. These reforms to retirement income security would be a textbook case of "better late than never" to advance multiple priorities in Prime Minister Carney's mandate letter.