OAS cost may tally $109B by 2030

Baby Boomers longevity hits Ottawa's coffers

John Greenwood, Edmonton Journal (Financial Post)

At a time of ballooning government debt, this is probably the last thing Ottawa wants to hear: According to a new report by Canada's chief actuary, payments to seniors by the Old Age Security program could rise to $109-billion by 2030, up from $36-billion in 2010.

That's a threefold increase, and unlike the Canada Pension Plan, which is funded from an actual investment fund, OAS comes directly from government revenue.

OAS is a key part of Canada's public welfare system that along with Canada Pension Plan ensures a minimum income for all seniors. It was instituted in the 1950s and continues to be regarded as an important part of this country's public policy. Problem is, like the rest of the welfare system, it's become quite expensive thanks to now-familiar demographic trends.

"Mortality rates between the ages of 80 and 90 have recently decreased at a pace of about three times faster than that observed over the previous two decades," said Jean-Claude Ménard, the chief actuary.

An important point to note is that the OAS cost estimates don't take into account recent changes boosting the age of eligibility to 67 from 65. Those changes - contained in legislation that was passed at the end of June - are expected to reduce OAS payments by about $10-billion a year by the time they're fully implemented in 2030.

One of the more interesting findings in the 96-page report was that between 2005 and 2009 mortality rates for all seniors actually rose compared to the government's expectations (5% more men died than expected, 3% more women). While this should be good news for taxpayers, it is likely a statistical blip that will have little or no impact on the long-term trend toward longer lifespans.

To read the full article: http://www.edmontonjournal.com/business/cost+tally+109B+2030/6920530/story.html