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Turning 65? Consider deferring your OAS benefits

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  • Turning 65? Consider deferring your OAS benefits
  • Beginning July 2013, you can delay receipt of your Old Age Security (OAS) pension benefits for up to five years (60 months) after the month you turn age 65. For each month that you delay receipt of your OAS benefits, an additional 0.6% is added to your pension entitlement. If you would otherwise be subject to a full clawback of your OAS benefits, deferring receipt of the payments will be beneficial with no attached risk or cost.

    The OAS clawback applies if your net income for the year exceeds a certain annual threshold. For 2013, this threshold is $70,954. The amount of the clawback is equal to the lesser of your OAS payments or 15% of the amount by which your net income for the year exceeds the threshold amount. For 2013, the full amount of the OAS benefit is eliminated when your net income reaches just under $115,000.

    Assume you will turn 65 in late October 2013 but that you plan to continue working until the end of 2016. Your expected net income for this period will be in excess of $115,000 per year. If you start to collect your OAS benefits at age 65, you will receive zero net payments for the last two months of 2013, as well as for 2014 to 2016 (inclusive) once the government deducts the clawback from your OAS payment. Assume your net income for 2017 and subsequent years will be less than $70,000 (i.e. once you retire). By deferring receipt of the commencement of your OAS benefits to January 2017, you will become entitled to a much larger OAS payment. Deferring for the maximum five-year period would increase your entitlement by 36%.

    Generally, no action needs to be taken to defer the commencement of your OAS benefits: you simply don’t apply for OAS until you want to receive it. However, proactive enrolment, a new process that is being phased in from 2013 to 2016, is intended to eliminate the need for you to have to apply for your OAS pension. About one month after your 64th birthday, Service Canada will send you either an application form for the OAS pension or a notification letter informing you that you are eligible to be proactively enrolled to receive the OAS pension (enrolment that does not require an application). If you receive notification that you are eligible for proactive enrolment, you must take action and contact Service Canada if you wish to defer receipt of your benefits.

    October 23, 2013