Federal Budget 2012: Save more for retirement, youth told

OTTAWA—Young Canadians will need to put more money aside for retirement, the federal government warned Monday in its clearest statement yet on its intentions for the Old Age Security system.

The long-term costs of the program are unsustainable and changes are inevitable, Human Resources Minister Diane Finley told a downtown Toronto audience that included a group of students.

But, she said, “Any necessary changes will be made with a substantial notice period, allowing plenty of time for Canadians — some of you here today — to adjust your retirement planning accordingly and prepare for the future.”

Despite widespread demands for the Conservatives to spell out the changes to OAS first mentioned by Prime Minister Stephen Harper last month, Finley said the details will be kept under wraps until the 2012 federal budget, expected in March.

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But in her speech to the Canadian Club of Toronto, Finley shifted the focus of the government’s defence of its OAS policy by characterizing it as an issue of generational fairness.

OAS, the main federal government-supported retirement benefit that goes to most Canadian seniors, will in five or 10 years become a financial risk for Ottawa because demographic changes will mean too few taxpayers will have to cover the cost of OAS for too many retirees, Finley said.

“As a result, the total cost of benefits will be increasingly unsustainable for tomorrow’s workers and taxpayers.

“And it’s the next generations of Canadians who will have to shoulder the burden. The next generations who will have their own families to raise, their own mortgages to pay, their own student and household debt to manage,” she added.

“We cannot allow ourselves to be pegged into a situation where we are faced with a choice between the country’s financial security . . . and our commitment to aging Canadians who have worked long and hard to build this great nation.”

The only way to preserve the OAS program — which costs Ottawa $29 billion out of a budget of $274 billion — is to hold down the future cost of benefits, Finley said. Conservatives have hinted this may be done by raising the age of eligibility for OAS to 67 from 65. However, the government says current retirees or those nearing retirement will not be affected.

Finley said Canadians are not saving enough for their retirement and the Harper government is addressing that problem by bringing in tax-free savings accounts, pension income splitting for tax purposes and other programs.

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Facing a public backlash over OAS, partly because changing the program was not mentioned by Harper during the 2011 election campaign, the Conservatives say they must act to protect Canadians’ future retirement security.

Behind the increasingly hot issue is a debate about whether OAS will be sustainable in the future. The Conservatives say the current program is too expensive and will force Ottawa to go into debt or raise taxes. But many economists say OAS, as a proportion of government costs, will be affordable over the long term.

And opposition MPs say it’s an attempt by the government to make future seniors pick up the tab for Conservatives priorities, which include earmarking billions of dollars for jet fighters, new jails and corporate income tax cuts.

“The Old Age Security program is viable in the long term and Conservatives must stop fear mongering and making wild claims about higher taxes as an excuse to cut benefits to seniors,” NDP interim leader Nycole Turmel said after Finley’s speech.