This is meant to provide you with a quick simplified overview of how the program works for most Canadians. For retirement planning purposes, please refer to the official government documentation.
In addition to workplace pensions and personal retirement savings, most Canadians will receive income from two public programs in retirement: the Canada Pension Plan (CPP) and the Old Age Security (OAS) pension.
Unlike the CPP, where eligibility depends on contributions throughout your working life, eligibility for the OAS pension is based on years of residency in Canada.
To receive the maximum OAS pension, you must be at least 65 years old and have resided in Canada for 40 years after turning 18. It was announced in 2012 that the eligibility age for OAS would eventually be increased to 67, but this plan was later cancelled.
But you don’t have to receive OAS at the age of 65. You can wait to apply until the age of 70. For every month you wait, your maximum monthly amount will be increased by 0.6%. If you wait until you are 70, it will increase by 36%.
If you applied to receive OAS at the age of 70, the maximum pension you would receive today would be $834.40/month ($10,013/year).
OAS pension payments are considered taxable income. Additionally, if your income exceeds a threshold ($79,054 for 2020), you will have to repay part or all of the OAS pension. The repayment amount is 15% of income earned above the threshold. So if you received an OAS pension of $7362/year, the entire amount would need to be repaid at an income of $128,137. If you received an OAS payment of $10,013/year, the entire amount would need to be repaid at an income of 145,806.
For most Canadians, the OAS pension will form a key part of their retirement income. The ability to increase the pension by 36% by waiting until the age of 70 to receive it, means that most Canadians can become eligible for a significant guaranteed pension for life that is indexed to inflation. Combined with delayed CPP, the total support from these two public pension programs may be a pleasant surprise.
If you can afford to wait until 70, you probably should. But this depends on your situation (e.g., you may have a below-average life expectancy) and preferences. Keep in mind that OAS payments are individual and unlike CPP, there are no survivor benefits.
One final note: while I’ve provided a basic overview of the OAS pension benefit, there are additional OAS benefits available to individuals that have a low income. These benefits are intended to reduce poverty among seniors.