Financial policies reflect ageism

The myth that older people are an economic burden on society rears its bigoted head in the form of financial policies that fail to recognize population aging as a natural process.

Ageism exists in the failure of governments to create policies that ensure economic and health care support for the elderly, says the association representing the 50plus age group in Canada.

CARP recently reported on ageism in a number of areas, including financial policies.
The report says ageist attitudes portray older Canadians as a financial drain on public coffers. The resulting economic policies target seniors, seeking to make them “pay their fair share.”

Retirement savings rules
One example is the 1996 rule regarding retirement plans and investment funds. The new rule forces RRSP conversion at an earlier age and mandates higher withdrawals of taxable income from RRIFs. This applies even when withdrawals outstrip a plan’s returns and bump the pensioner into a higher tax bracket.

Though more subtle, examples of ageism are found in policy-makers’ tendency to overlook policies that are especially hurtful to older Canadians.

Examples are l too easy to find.

Single income penalty
Retired teacher and CARP member Frank Stokes has been lobbying for change to one inequitable tax situation, the so-called single-income penalty.

“The SIP is something that is hitting pensioners, like my wife and me, who followed the traditional lifestyle,” says Stokes.

Retired Canadian couples who conformed to the once-traditional division of labour during their working lives — typically one (usually male) breadwinner who worked outside the home and a wife who worked as homemaker — pay significantly more tax than two-income couples.

That’s because of the jump from one tax bracket to another when all the income is attributed to one person, rather than divided between partners.

Stokes notes that, unlike employer pensions, Canada Pension Plan benefits may be split with your spouse.

In fact, he says, government rules are contradictory, actively promoting CPP income splitting as a tax-saving strategy while denying the right to split private pension benefits.

Next page: Ageism in Old Age Security

OAS clawback
The most universal of public pensions, Old Age Security, comes with its own variation of ageism. Generally, eligibility for OAS depends on residency requirements and being age 65 or older.

For people with low incomes, the complementary Guaranteed Income Supplement provides additional money. Like the basic OAS, GIS is income-tested. For a single pension, one must start repaying when annual income hits $12,648.

Currently, pensioners with net annual income over $55,309 must repay part or all benefits. Some consider the clawback provision on OAS benefits to be unfair.

Walter Kelm, a retired federal bureaucrat who helped create the CPP, says a more basic problem is that GIS has been untouched by policy-makers for decades. This neglect has seen low-income pensioners left out of the “tax relief” focus of recent budgets.

Comparison with welfare
GIS eligibility is calculated using all non-OAS income. Kelm believes that exempting some sources of income from the calculation would be fair.

“Granting seniors at the bottom of the income ladder similar consideration would end the age discrimination that now exists between welfare programs for those under the age of 65 which contain clawback exemptions, and the GIS welfare program for those above the age of 65, which does not,” he says.

Kelm also argues that the clawback rate on GIS effectively taxe low-income seniors at a higher rate than high-income earners. For a single pensioner, the maximum monthly supplement is reduced by 50 per cent, or $1 for each $2 of other monthly income

Tax credit problem
The dividend tax credit could worsen the situation. When investors buy shares in Canadian corporations, the government allows a tax reduction, using the dividend gross-up.

This calculation uses an inflated level of dividend income (dividends received multiplied by 1.25) as the basis of a tax credit. So, for example, $100 in dividends is reported as $125 of income.

But the “advantage” becomes punitive if the inflated income crosses the thresholds for OAS clawbacks and the age tax credit, another income-tested “benefit” for seniors.

Harold Wirick, a retired accountant and CARP member, says a simple solution would be to allow pensioners to use actual, rather than grossed-up, income to determine eligibility for OAS/GIS benefits and the age tax credit.

“It would take just one extra line on the tax return,” he says. 

Support problems loom 
For all their seriousness, the implications of these neglectful policies are less alarming than the government’s general failure to address the reality of our ageing population.

With falling birth rates and rising life expectancies, it’s estimated just two working taxpayers will be supporting each non-working pensioner by 2030. At present, that ratio is four to one.

Even now, at a time of relative financial prosperity, older single women comprise a large part of GIS recipients and are among the poorest groups in Canada.

Problem will deepen
Ian Markham, senior actuary with Watson Wyatt in Toronto, agrees that Canada is facing a demographic challenge that will deepen with time.

Without proper attention now, in 20 years, “those who are 50plus will either have to finance their own pensions, which wasn’t their intention when they were working, or they have to assume their children will be willing to provide support,” Markham predicts.

June Yee is the financial editor for CARPNews FiftyPlus magazine.