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Andrew Jackson is an adjunct research professor in the Institute of Political Economy at Carleton University in Ottawa and senior policy adviser to the Broadbent Institute.
The new Liberal government is on track to seriously address the growing problem of poverty in old age. But their election promises need some critical reconsideration.
Recently released income data from Statistics Canada report that the incidence of low income among the elderly (age 65 and over) has risen to 11.1 per cent in 2013 from 7.6 per cent in 2000. "Low income" is defined as having an income of less than one-half the median income of a household of the same size.
Digging a bit deeper, senior couples had a low-income rate of 5.2 per cent in 2013, and senior singles (who are disproportionately women) had a very disturbing low-income rate of 27.1 per cent.
The rising incidence of poverty among the elderly basically tells us that Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits, which together provide a guaranteed minimum income for low-income seniors, have not risen as fast as the incomes of all Canadian households. This is not surprising, since the OAS and GIS generally rise only in line with inflation, while the working-age population has benefited from modest real wage growth.
The Liberals have promised to increase the GIS for single seniors by 10 per cent, at an annual cost of $720-million from 2016-17. Currently, the maximum monthly GIS payment is $773.60 and the maximum annual income from OAS and GIS combined is $1,344.12 a month or $16,129 a year. GIS payments, which go to 31 per cent of seniors, are reduced for those receiving income from other sources such as pensions, investments and employment.
For couples, the maximum monthly income from OAS and GIS combined is $2,167.
The Liberal proposal to increase the GIS will undoubtedly close a large part of the significant gap between the maximum benefit for singles and the poverty line, and put a big dent in the very high poverty rate for single seniors. This is to be commended.
However, the proposal does leave out in the cold the more than one in three (34.2 per cent) of low-income seniors who live as couples. As is the case for singles, the maximum OAS/GIS benefit for senior couples falls well short of the poverty line, to the tune of about $3,800 per year.
The Liberals have also promised to index OAS and GIS payments to a new seniors' price index instead of to all items in the Consumer Price Index. The reasoning is that the broadest inflation rate insufficiently registers increases in the cost of living for seniors.
While the move is well intended, the argument is dubious. A 2008 Statistics Canada study covering the years 1992 to 2004 found that the cost of living for seniors increased only marginally faster than the overall CPI for the 12-year period as a whole, by an average of 1.95 per cent compared to 1.84 per cent. The difference was attributable to one four-year period.
Research shows that seniors spend relatively more of their income than the general population on some items (food from stores, rent, utilities, health and personal care) but relatively less on other items (clothing, automobiles and private transportation, alcohol and restaurant meals). These differences in spending patterns generally offset each other.
A new seniors' price index could well give rise to other pleas for special treatment, especially given that inflation rates can often differ by province and city as well as by income group. In many respects, the spending patterns of the working poor, also tilted to rent and food, are not that different from those of lower-income seniors.
A better way to address the growing poverty among seniors would be to index OAS and GIS payments to the average wage. This would allow seniors to benefit from future economic growth, rather than just maintain their standard of living.
On a more positive note, the Liberals have promised not to proceed with the planned increase in the age of eligibility of the OAS and GIS to age 67 from age 65. This would have increased the poverty rate down the road by depriving seniors of two years of potential benefits. The status quo recognizes that not all seniors are able to work to age 67 due to ill health and/or caring responsibilities.
Taking into account the recent revival of discussions with the provinces to expand the Canada Pension Plan, the new federal government appears committed to a progressive reform of our inadequate income security programs for the elderly. However, they do need to scrutinize some important details of their plan more closely.
