This memo builds on the pioneering research of Dr. Paul Kershaw, UBC policy professor and founder of Generation Squeeze, whose work has put Old Age Security reform on the national agenda.

Recommendations such as shifting the OAS recovery threshold to $100,000 of household income, phasing out the age and pension income tax credits, and redirecting the savings to eliminate seniors’ poverty and ease the burden on younger generations, draw directly on the analysis and microsimulation modelling Kershaw set out in his Canadian Tax Journal article, “Better Late Than Never: Policy Options for Modernizing OAS and Retirement Tax Credits”, and on Generation Squeeze’s broader campaign to fix OAS.

We’re grateful for his leadership, and we see Build Canada’s memo as part of a growing convergence among policy thinkers, advocates, and commentators on the need to modernize OAS in generationally fair ways.

The Problem

In 2025, a retired couple earning $182,000 a year still collects more than $18,000 from Old Age Security. That’s because OAS phase-out doesn’t begin until an individual’s income reaches about $91,000.¹ Down the street, a family with kids has their Canada Child Benefit reduced once household income passes $81,222.² But because OAS is tested on individual income, not household income, a retired couple can collect full benefits up to $182,000.

That’s Canada’s retirement system in a nutshell: the cut-off for retiree couples starts at more than double the threshold for families raising children.

OAS is the federal government’s single largest transfer program. It was designed in 1952, when the average Canadian lived to 69.³ Today Canadians live to 83. Over the decades, payments grew, the Canada Pension Plan was added in 1966, and generous tax credits piled on. The system has done good – only 5 percent of seniors fall below the poverty line, compared with 10.7 percent of children and 11.6 percent of working-age adults.⁴ But at $86 billion a year, there’s no reason any senior should still be poor.

The Auditor General’s 2024 report was blunt: Employment and Social Development Canada can’t even tell whether OAS is meeting its goals.⁵ The department collected data about seniors but never analyzed it, and hasn’t updated its understanding of OAS’s purpose since the program was created. Meanwhile, the program’s costs have nearly doubled in a decade — from $44 billion in 2014 to $86 billion in 2025, with $104 billion projected by 2029.⁶ That $42 billion increase matches the projected federal deficit. No other program comes close to this growth.

This matters for every Canadian under 50. When baby boomers were young adults, seven working-age people supported each retiree. Today, it’s three. Using Statistics Canada’s Social Policy Simulation Database and Model, middle-earning millennials in Ontario now pay $276 more per year in income taxes toward seniors’ retirements than boomers did at the same age — a 28 percent increase.⁷ High earners pay $4,124 more — a 43 percent jump. These figures will keep climbing as Canada approaches peak population aging.

An Overburdened Generation

The Chrétien government saw this coming. The 1995 federal budget warned that the share of Canadians over 65 would nearly double, and the worker-to-retiree ratio would fall to 3:1.⁸ The 1996 budget proposed replacing OAS with a new “Seniors Benefit” that would reduce payments to higher-income households and repurpose the age and pension income tax credits. The government followed through on Canadian Pension Plan (CPP) reform — raising premiums by 68 percent over six years (1997-2003).⁹ But after spending its political capital on CPP, the government quietly dropped OAS reform. Three decades of inaction later, the bill has come due. This isn’t just about fairness between generations. It’s about fiscal survival. OAS is why Canada has little fiscal room to respond to economic threats. It’s the single biggest source of deficit spending. And the age and pension income tax credits don’t even help the poorest seniors, because they’re non-refundable. According to Canada Revenue Agency T1 statistics, 39 percent of age credit claimants report incomes below $25,000 and get little or nothing from the credit.¹⁰ The good news: Canadians are ready for this change. A Research Co. poll for Generation Squeeze found that 74 percent of Canadians, and 76 percent of seniors, support asking the one in five retirees in households above $100,000 to accept smaller OAS payments.¹¹ Support crosses party lines, with over 70 percent of Liberal, Conservative, and NDP voters in agreement. Even the Canadian Association of Retired Persons, the largest seniors’ advocacy group in the country, has called on Ottawa to reorganize OAS so it delivers more to retirees who need it.¹²

Existing Solutions

Australia’s Age Pension. Australia means-tests its public pension using both income and asset thresholds, assessed at the household level. About 25 percent of eligible Australians receive a partial pension and another 25 percent receive nothing because their private retirement savings are sufficient.¹³ This keeps public pension spending well below most OECD peers.

United Kingdom’s Winter Fuel Payment Reform. The UK recently restricted its Winter Fuel Payment to lower-income pensioners.¹⁴ From 2025-26, pensioners with income above £35,000 have payments clawed back through the tax system. The shift is projected to save approximately £450 million annually while protecting the poorest retirees.¹⁵

Denmark’s Public Pension. Denmark’s public pension has two parts: a universal base and an income-tested supplement. The supplement is reduced based on household income, so higher earners get less. Combined with quasi-mandatory occupational pensions, this keeps Denmark’s senior poverty rate among the lowest in the OECD while managing fiscal costs as the population ages.¹⁶

What Must Be Done

It’s time to rebalance the books. Canada doesn’t need a new program. It needs to finish the reform the Chrétien government started 30 years ago. The approach is simple: stop sending retirement subsidies to people who don’t need them, and redirect the savings to seniors who do, to younger generations, and to deficit reduction.

• Shift the OAS recovery threshold to $100,000 of combined household income, or $65,000 for a single senior (to start), and index it to the Consumer Price Index annually. Right now, OAS cut-off is based on individual income, starting at about $91,000.¹⁷ A retired couple can earn $185,000 and still collect over $18,000 in OAS. The government should move the threshold to $100,000 of combined household income, or $65,000 for a single senior – the same principle used for the Canada Child Benefit. A single person needs roughly two-thirds of a couple’s income to reach the same standard of living (the equivalence scale Statistics Canada uses for its Low Income Measure), so a single threshold set at ~65% of the couple figure treats singles and couples consistently. Microsimulation modelling using Statistics Canada’s SPSD/M shows this would save approximately $6.8 billion per year, and the $65K single threshold raises total clawback savings to an estimated $8 to 9B/year affecting roughly a quarter of seniors.¹⁸ Because median after-tax income for an unattached senior is about $36,000, the $65K single threshold leaves the large majority of single seniors – including most widows – fully unaffected. The average after-tax reduction would be about $2,900 per affected retiree. This option received the strongest public support across age groups and regions in national polling.¹⁹ More than 60 percent of Canadians say the OAS threshold should match or fall below the $81,000 cutoff used for the Canada Child Benefit — a stricter standard than this proposal recommends.²⁰ The new threshold would be indexed to the Consumer Price Index annually, consistent with the Canada Child Benefit and the existing OAS recovery threshold.

• Phase out the age and pension income tax credits. These two credits cost $7 billion a year.²¹ The age credit alone costs $5.5 billion — the same amount the government spends on $10-a-day child care. Both credits are non-refundable, meaning the lowest-income seniors who need help most get little or nothing. The pension income credit gives up to $300 to every retiree with pension income, regardless of whether they earn $30,000 or $300,000. The Chrétien government proposed repurposing these credits in 1996.²² The government should eliminate both and redirect the funds to backstop rising OAS costs. This is a tax code cleanup, not a benefit cut for vulnerable seniors.

• A Phased, Fair Transition. Reform shouldn’t pull the rug out from people who have already retired. New retirees – anyone claiming OAS for the first time after the legislation passes – face the $100,000 household threshold immediately. Existing couple recipients get a three-year glide path: the recovery threshold begins at $130,000 in the first year, drops to $115,000 in the second, and reaches $100,000 in the third. Existing single recipients follow a parallel three-year glide path – $91,000 in year one, $78,000 in year two, $65,000 in year three. The age and pension income tax credits phase out over five years at 20 percent per year — the same gradual approach Ottawa has used to wind down other tax measures.

• Use $2 billion of savings to eliminate seniors’ poverty. Nearly 400,000 seniors still live below the poverty line, but Statistics Canada’s analysis of deep income poverty finds that deep poverty among seniors is relatively rare.²³ An annual supplement of $5,000 per poor senior, delivered through the existing Guaranteed Income Supplement, would virtually wipe out seniors’ poverty for approximately $2 billion a year. This should be the first dollar spent from any OAS reform savings. No senior who needs help should lose it.

• Redirect remaining savings to younger generations and deficit reduction. At maturity, the combined reforms yield roughly $15-16 billion in gross annual savings: about $8-9 billion from the updated thresholds and $7 billion from winding down the age and pension income credits. About $2 billion of that is redirected to the poorest seniors, leaving more than $13-14 billion for deficit reduction. This isn’t new spending — it’s the withdrawal of subsidies from households with six-figure incomes. A program that costs $86 billion a year and grows faster than anything else in the budget is the single biggest reason Ottawa has no fiscal room left. Closing that gap, not expanding government, is how today’s workers protect tomorrow’s.

Because the schedule will ramp up, so will the savings: gross savings build from roughly $5 billion in year one to about $13 billion by year three, reaching the full $15-16 billion by year five. Net of the $2 billion reserved to end seniors’ poverty, the amount freed for deficit reduction grows from about $3 billion in year one to $9-10 billion by year three and more than $12 billion by year five. People who planned around the old rules get time to adjust – which also defuses the political resistance that has sunk reform before.

Common Questions

Won’t this hurt seniors who depend on OAS? No. These reforms don’t touch a single dollar going to low- or middle-income retirees. They increase support for the poorest seniors by $5,000 a year. The only seniors affected are those in households earning more than $100,000, and even they lose about $2,900 after tax — and not all at once, but over a three-year phase-in. Three-quarters of Canadians, including 76 percent of seniors, support this change.²⁵ Single seniors are protected too: the $65,000 single threshold is nearly double the typical unattached senior’s income (~$36,000 after tax), so only the highest-income single seniors are affected at all.

Isn’t this just an attack on a program seniors earned? OAS isn’t a pension seniors paid into, that’s CPP. OAS is a government subsidy funded by current taxpayers. Unlike CPP, which was reformed in the 1990s so Canadians prepay for their benefits, OAS was never adapted. Today’s workers pay more than boomers did to fund retirements wealthier than any generation before. Rebalancing OAS is about fairness, not austerity.

Is it politically possible to reform OAS? The Chrétien government proposed exactly this in 1996. Harper legislated a rise in the eligibility age in 2012. Polling shows 74 percent support across party lines.²⁶ Even financially secure retirees are publicly volunteering to take less.²⁷ The political risk today isn’t reforming OAS. It’s explaining to millennials and Gen Z why the government didn’t.

Conclusion

Canada’s retirement system was built for a country where people died before they retired and seven workers supported each senior. That country doesn’t exist anymore. OAS costs $86 billion a year, grows faster than any other program, and still leaves 400,000 seniors in poverty while sending cheques to households earning nearly $200,000. The government has the data, the public support, and the fiscal imperative to act.

Shift the OAS clawback to $100,000 of household income, phased in over three years. Phase out the outdated tax credits. End seniors’ poverty. Restore fiscal room for the next generation. This reform is 30 years overdue. It can’t wait any longer.