The Old Age Security (OAS) pension is one of the three main pillars of Canada’s retirement income system besides the other two pillars are the Canada Pension Plan (CPP) and Employment Pension Plans/Individual Retirement Savings.

Unlike the CPP, Old Age Security benefits are not tied to your employment history. You may be eligible to receive the OAS pension even if you have never worked or are still employed. The OAS pension is a taxable monthly payment available to seniors who are aged 65 and older and who meet the eligibility requirement.

Who are eligibility for OAS pension?

• You must be at least 65 years of age.

• If living in Canada: You must be a Canadian citizen or legal resident and must have lived in Canada for at least 10 years since you turned 18.

• If living outside Canada: You must have been a Canadian citizen or legal resident before you left Canada and must have resided in Canada for at least 20 years since you turned 18.

• There are a few other scenarios where you may be eligible for the OAS; for example, if you have lived in a country with which Canada has established a social security agreement.

When you can apply for OAS pension?

If you wish to start receiving your OAS pension at 65 years of age, you can send in your application the month after you turn 64 to Service Canada .

How much OAS benefit will you receive?

The amount you will receive on a monthly basis depends on how long you have lived in Canada after turning 18.

To qualify for a full OAS pension, you must have lived in Canada for at least 40 years after age 18. You will receive a partial pension benefit if you haven’t resided in Canada for the full 40 years. The partial pension benefit is 1/40th of the full pension amount for each complete year you lived in Canada after age 18. For example, if you had lived in Canada for 20 years as an adult, you may qualify to receive 20/40th or one-half of the full benefit.

OAS benefits are adjusted quarterly in January, April, July, and October based on the prevailing Consumer Price Index. For the first quarter of 2021 (i.e. January to March), the maximum monthly OAS benefit is $615.37.

What is OAS deferral option?

Since July 1, 2013, individuals can voluntarily defer their OAS pension for up to 5 years after the date they become eligible. This deferral will make them eligible for a higher monthly pension later.

For every month the OAS is deferred, the monthly pension amount increases by 0.6% up to a maximum of 36% at age 70.

What is OAS clawback?

Officially known as the OAS recovery tax. Your OAS benefit may be reduced by a clawback if your net income for the previous calendar year exceeds $77,580 (2019), $79,054 (2020), and $79,845 (2021). This means if your net income exceeds this amount, you must pay back 15% on the excess income up to a maximum of the total OAS benefit received. This deduction is like an additional 15% tax on top of your current tax rate.

For example, for the 2020 income year, the income threshold was $79,054. If your net income was $85,000, the excess of $5,946 would trigger a clawback of $891.90 (i.e. 15% x $5,946). This would result in a monthly reduction in OAS benefits of $74.33 for the July 2021 to June 2022 period.

For the January to March 2021 quarter, if your net income exceeds $129,075, your OAS benefit will be reduced to zero.

How to minimize OAS clawbacks?

There are some options that may be used to limit OAS clawback, such as:

• Income Splitting: Splitting eligible pension income including workplace pensions, RRIF, and utilizing spousal RRSPs. This can lower individual spouses’ overall income and limit or eliminate OAS clawback.

• Defer OAS/CPP: Seniors can defer OAS pensions for up to 5 years from when they are eligible. CPP can be deferred as well. However, note that deferring OAS or CPP will increase your benefits later down the road and could then trigger OAS clawbacks at that time. In some cases, taking CPP much earlier may be a better option.

• Utilize RRSP Contribution Room: You can contribute to an RRSP until the end of the year in which you turn 71. If you have unused RRSP contribution room from previous years or still have employment income, contributing to an RRSP will lower your net income for OAS calculations. Making spousal RRSP contributions will also achieve the same result.