Gold’s Legal Minute*

PENSIONS - Everything you wanted to know, but didn’t ask: Volume #1 OLD AGE PENSIONS (OAS)

INTRODUCTION

The Professor asks, “Does anybody have a story about pensions?”

The Indian gentleman at the back of the classroom says, “I have one. You see that “In 1856, a British civil servant named William Herschell was entrusted with the task of administering the pensions of Indian moguls. Many undeserving recipients were known to be collecting under false names. Indeed, in at least one case a pension was being doled out to someone was apparently, had lived more than 200 years. Herchsell’s solution to the flagrant fraud? He invented a system of fingerprinting.” (www.anecdotage.com)

Then after his upright hand was acknowledged, a distinguished looking BRIT offered the following anecdote concerning the famed novelist, Joseph Conrad:

"When I first went down to Kent to see Joseph Conrad," William Maas once recalled, "he had written to me that I should be met by a pony and trap which would bring me to the farmhouse where he was living. When I arrived at Ashford, however I found that the rustic equippage referred to had given place to a small open two-seater car, inexpressibly shabby and apparently in the last stages of dilapidation. It was certainly the saddest looking crock I had ever seen. In the midst of our talk that afternoon Conrad suddenly turned to me with the look of a naughty child and said in a hushed voice, 'Please don't mention in your article that I have a car. You see, I am in receipt of a Civil List pension and if it were known that I have a car my pension might be withdrawn - for extravagance." [Sources: William Maas, John o'London's Weekly, Sept 15, 1939](www.anecdotage.com)

Not to be outdone, a London suit (read business type) from the Canary Wharf district, remembering a verbal exchange from PUCK, offered:

“WILLIS: I wonder if there will ever be universal peace.

GILLIS: Sure. All they've got to do is to get the nations to agree that in case of war the winner pays the pensions." (www.anecdotage.com)

Finally, an elderly lady from the American deep-south piped in with this story. I had asked my Aunt Sallie: "Why was it you never married again, Aunt Sallie?"
"'Deed, Miss Ellie," replied the old woman earnestly, "dat daid (…) maan’s wuth moah to me dan a live one. I gits a pension." (Edith Howell, Armor) (www.anecdotage.com)

After he was finished speaking, the Professor said: “Compliments to all of you. You proved my unspoken point. Pensions are interesting. Now that I have your attention, here is a mini- briefing on pensions.”

WHY?

Most experts agree that in order to retire comfortably, a worker needs an income equal to about 60-70% of his or her earnings before retirement. This income typically comes from several sources, inclusive of a pension.

WHAT?

Pensions are part of Canada's retirement income system. This system can take several forms. First, there are public pensions, such as an Old Age Security (OAS) pension, federal income-support programs and special allowances for spouses and survivors. Second, there are pensions for veterans of the Canadian armed forces. Third, there are public earnings-related pensions, notably the Canada Pension Plan (CPP) and its Quebec counter part, the Quebec Pension Plan (QPP). Fourth, in the private sector, there are also employer-sponsored pension plans. Fifth, there are personal savings, inclusive of personal retirement savings plans (RRSPs). (Editor’s Note: The present article deals with the OAS. Future pieces shall address the other pension categories.)

Definitions

Pension is defined as "(1) A payment, not wages, made regularly to a person (or to his family) who has fulfilled certain conditions of service, reached a certain age, etc. (a soldier's pension, an old-age pension) (2) A regular payment, not a fee; given to an artist, etc. by his patron; subsidy (3) In France and other continental countries a) a boarding house b) room and board—to grant a pension to—pension off to dismiss from service with a pension" (Guralnik, David B., (Editor in Chief), Webster’s New World Dictionary, Second College Edition, William Collins + World Publishing Co. Inc., U.S.A., 1978).

This is contrasted with the definition offered by Samuel Johnson, the man of letters of the 18 century Britain, who in his famous dictionary, sarcastically defined pension as "an allowance made to any one without an equivalent," adding: "In England it is generally understood to mean pay given to a state hireling for treason to his country." (Seven years later, Johnson himself received a pension.)”[Sources: Evan Esar, The Comic Encyclopedia, p. 405] (www.anecdotage.com)

WHERE?

In Canada, most citizens qualify for the universal public pension. They may be entitled to receive further pensions. An elaboration is as follows.

WHICH?

Universal Public Pensions/ OLD AGE SECURITY (OAS) PROGRAM: OAS, GIS, Allowances and Benefits

The universal public pensions provide a minimum income to the mature sector of our population. This is the basic pension for all Canadians. The Old Age Security Act provides for the payments of the Old Age Security (OAS) pension, Guaranteed Income Supplement (GIS), Spouse’s Allowance and Widowed Spouse’s Allowance. A description does follow.

Old Age Security (OAS) Overview

In virtue of the federal Old Age Security Program, there are benefits for most people 65 or over. At age 65, whether working or not, regardless of career earnings, but conditional on meeting eligibility criteria, a person will be entitled to an OAS pension. To be entitled to a full OAS pension, beyond the age as aforesaid, a person must have lived in Canada as a citizen or legal resident for 40 years after the age of 18. However, a person may qualify for a partial OAS pension if he or she has lived in Canada for at least 10 years since the age of 18. Since the pension is reduced by 1/40th for each year of residence less than 40, a person with 10 years of residence would receive 10/40ths or 1/4th of the full pension. To receive an OAS pension outside the country, a person must have lived in Canada for a minimum of 20 years after age 18. Otherwise, payment may be made only for the month of a pensioner's departure from Canada and for six additional months, after which payment is suspended. The benefit may be reinstated if the pensioner returns to live in Canada and meets all conditions of eligibility. As of March 2009, the basic OAS pension paid to people over the age of 65, is at maximum in the amount of $516.96, (but on average $489.54). (N.B. This compares with $466.63 as of July 2004.) Increases in OAS rates are based on changes in the average Consumer Price Index (CPI).

The federal old age security payments are reduced once net income exceeds $66,335 per year. The reduction is at the rate of 15% of net income over this threshold divided by 12. There will be no OAS benefit where an income exceeds $107,692 per year. (July 2009)

Guaranteed Income Supplement (GIS) Overview

In addition, there is the Guaranteed Income Supplement (GIS). It is an additional income source beyond OAS. The amount of the GIS to which a person is entitled depends on his or her marital status and income. If married or living in a common law relationship, the combined income of the pensioner and spouse or common law partner must be taken into account. (N.B. The term, “spouse” includes a common-law partner.) In the third quarter 2009, the GIS is available to OAS recipients with a maximum annual income, excluding OAS payments, of $15,672 for singles, $20,688 for the spouse of a pensioner, $37,584 for the spouse of a non-pensioner and $37,584 for the spouse of an allowance recipient.

In the third quarter of 2009, the maximum monthly GIS benefit is $652.51 for singles, $652.51 for the spouse of a non-pensioner and $430.90 for a spouse or common law partner of a pensioner or an allowance recipient.

(N.B. In 2004, about 1.5 million seniors received the GIS supplement. Close to one in three then lived in Quebec. In the third quarter of 2004, the monthly maximum was $554.59 for singles, $554.59 for the spouse of a non-pensioner and $361.24 for a spouse or common law partner of a pensioner or an allowance recipient.)

Allowances and Benefits

The Allowance, which also includes an allowance for persons, whose spouse or common law partner has died, is paid monthly. It is designed to recognize the difficult circumstances faced by many surviving persons and by couples living on the pension of only one spouse or common law partner. Recipients must re-apply annually. These benefits are not considered as income for income tax purposes. The Allowance is not payable outside Canada beyond a period of six months, regardless of how long the person lived in Canada. The Allowance may be paid to the spouse or common law partner of an OAS pensioner or to a survivor. To qualify, an applicant must be between the ages of 60 and 64 and must have lived in Canada for at least 10 years after turning 18. An applicant must also have been a Canadian citizen or a legal resident of Canada on the day preceding the application's approval. To qualify, the combined yearly income of the couple or the annual income of the survivor cannot exceed certain limits, which are established quarterly. The OAS and GIS benefits are not included in their combined yearly income.

For the third quarter of 2009, the maximum annual income to be eligible for a Spouse or Common Law Allowance is $28,992, while the maximum for a Survivor Allowance is $21,120. The maximum monthly benefits are $947.86, (the average being $386.27) and $1050.68 (the average being $593.84) respectively. (N.B. This compares with the third quarter of 2004, when $24,864 was the maximum annual income to be eligible for a Spouse or Common Law Allowance and $18,240 was maximum for a Survivor Allowance. At that time, the maximum monthly benefits were $827.87 and $913.99 respectively. )

The Allowance stops when the recipient becomes eligible for an OAS at age 65, if the beneficiary leaves Canada for more than six months or dies. For a couple, the Allowance stops if the pensioner spouse or common law partner ceases to be eligible for the GIS or if the spouses or common law partners separate or divorce. In addition, the Allowance stops if a survivor remarries or lives in a common law partnership for more than 12 months. It is estimated that fewer than half of those eligible are now receiving it; some say that allowances are not well publicized.

Since 1973, all OAS benefits are adjusted quarterly (in January, April, July and October). These increases are legislated under the Old Age Security Act so that benefits keep up with the cost of living. The OAS, the GIS and Allowances are indexed quarterly relative to the CPI. OAS and GIS payments are made by direct deposit, but there can only be direct-link accounts in Canadian and U.S. banks. Since the Canadian Government only pays OAS/GIS cheques in Canadian dollars, a conversion fee is charged by foreign banks. The OAS pensions are paid on the third-to-last business day of each month, except in December, when they are paid just before Christmas (Stewart, Jim, "Seniors Pension hike just covers drug-plan premiums, Workers' qpp contributions going up" The Gazette, Montreal, Monday, December 23, 2002, pg. D4).

Application forms are available at the office of Income Security Programs at Human Resources Development Canada/Développement des ressources humaines Canada (HRDC). The HRDC is bound by the Old Age Security Act, which limits all retroactive payments to 11 months. Hence, the longer people wait to apply, the more they risk losing out.

If a person dies before his or her 66th birthday without applying for OAS, the estate is entitled to a part of the OAS pension (as well as the GIS). An estate can make a post-mortem application indicating the Social Insurance Number (SIN). Along with the form, the death certificate and a copy of the last income tax return of the deceased are required. Before 1995, an estate could make such a claim for up to five years after the date of death, but now, requests of this kind must be submitted within the year of the date of death. If the application is approved, and depending upon eligibility, the estate can receive up to one year in back payments (Kearns, Hilda, "Seniors, Estate eligible for post-mortem pension," The Gazette, Montreal, Thursday, May 7, 1998, pg. E9).

HRDC sends out thousands of personalized GIS applications to seniors whose tax returns indicate that they are probably eligible for the supplement. In one round, it mailed 105,000 forms to potential recipients not then getting the supplement. In or about 2004 for example, a total of 75,000 were returned and, of these, 70,000 were initially deemed eligible. In view of this initiative, the number of recipients usually increases in August and September each year.

DIRECTORIES

OAS

Human Resources Development Canada (H.R.D.C.). Its co-ordinates are: Tel.: 1 (800) 277-9914; Tel.: 1(800) O-Canada; Tel. (TTY/TDD devices): 1 (800) 465-7735; Tel. (OAS/GIS - Service in English): 1 (800) 277-9914; Tel. (OAS/GIS—French services): 1 (800) 277-9915; Web site: www.hrdc-drhc.gc.ca/isp

Commissioner of Review Tribunals Canada Pension Plan/Old Age Security (CPP/OAS), Office of the Commissioner of Review Tribunals CPP/OAS PO Box 8250, Station "T"
Ottawa, ON K1G 5S5; Tel. (Free of charge in Canada): 1 (800) 363-0076; Tel. (Outside of Canada - Collect call): 1 (613) 946-0320; Fax: 1 (613) 941-3348; Fax (Outside of Canada): 001-613-941-3348; E-mail: info@ocrt-bctr.gc.ca; Web site: www.reviewtribunals.gc.ca

CONCLUSION

The foregoing provides a broad overview of the OAS/GIS pension structure. Its purpose is to ensure basic sustenance for every Canadian later in life. These programs speak well to the civilized nature of our society. As its ads suggest, Canada’s Public Pensions have been improving the quality of life of Canadians for 75 + years. There remains, however, room for improvement