Seniors get a raise

An increase to the Old Age Security pension for seniors aged 75 years and older begins next week, which I think is unfair to all those younger seniors between the ages of 65 and 75. We received our first increase last month and I must admit every increase helps. This raise will be the first permanent increase to the OAS pension since 1973, other than adjustments due to inflation. In 1970 Old Age Security benefits were $79 per month according to the Canadian Museum of History. So have these payments kept up with inflation? 

Yes, they have. According to the Inflation Calculator, $79 in 1970 is equivalent in purchasing power to about $589.80 today, an increase of $510.80 over 52 years.  Today’s OAS is about $668 for those under 75 and $773 for those over 75. So today as seniors we have slightly more buying power than the $79 that seniors had in 1973. The amounts may look more but it is always important to calculate buying power and adjust for inflation.

The dollar had an average inflation rate of 3.94% per year between 1970 and today, producing a cumulative price increase of 646.58%. This means that today's prices are 7.47 times higher than average prices since 1970, according to Statistics Canada's consumer price index. A dollar today only buys 13.394% of what it could buy back then.

The inflation rate in 1970 was 3.35%. The current inflation rate compared to last year is now 7.20%. If this number holds, $79 today will be equivalent in buying power to $84.69 next year. For example, if you started with $79, you would need to end with $589.80 in order to "adjust" for inflation (sometimes referred to as "beating inflation").

These numbers are important to remember when you are saving for retirement. If you don’t account for inflation your retirement may not be what you think it will be.

It is important for Canadians to remember that the objective of the OAS program is not to ensure an adequate pension but to ensure a minimum income for seniors and help reduce the incidence of low income among Canada’s seniors. The OAS benefits include the OAS pension, which is paid to all individuals aged 65 and older who meet the residence requirements; the GIS for low-income seniors; and the Allowances for low-income Canadians aged 60 to 64 who are the spouses or common-law partners of GIS recipients, or who are widowed or widowers.

The good news is that all OAS benefits are indexed, on a quarterly basis (in January, April, July and October), so that they maintain their value over time, even as prices increase. Increases to OAS benefits are calculated using the Consumer Price Index, which measures changes in prices paid by Canadian consumers for goods and services. In July 2022, as a result of quarterly indexation, maximum OAS benefits increased by 2.8%.