Title Image by Generation Squeeze
*Updated – December 20, 2025
Yep, I’m gonna talk about how I want the federal government to take away my free OAS money AGAIN! And, here in Part One of this two-part series, I will be revisiting some of the basic tenants of the OAS program and the “Old Age Security Recovery Tax” (claw-back) again, but in much greater detail this time. I will also delve into Generation Squeeze’s proposed plan I previously mentioned concerning how they would like to see the OAS program restructured.
In Part Two, I am going to cover a couple of interesting issues that I have not dealt with before, those being, 1) that we retirees have another excellent income generating tool available to us that can churn out totally tax-free money for the rest of our lives, and 2) my plan for how I see the “Old Age Security Recovery Tax” being reformed.
What I will have to say here about this other potential source of tax-free money may or may not get everybody else thinking “that’s a good reason for me not to want to part with my OAS freebie”. Fair enough. For those folks, my plan will propose another incentive, a carrot if you will, to make this idea a little bit more palatable. And that idea is rooted in the concept of the good old-fashioned political bribe.
A bribe you say! This sounds like we’re going to be robbing Peter to pay Paul, i.e. taking money out of one hand and giving it to the long-suffering affluent retirees with the other hand. That is not the case. My bribe will not directly or immediately cost the government anything. I will leave it to actuaries to figure out whether it might do so long-term.
The other thing I would like to clarify is that my plan is not to remove all OAS money from all OAS recipients. I actually think lower-income retired folks should be getting more than they currently are receiving.
The argument that is often made when you begin to discuss changing the amount of money people receive from OAS is that “there is a process already in place whereby OAS recipients begin to have their OAS monies clawed back by the government”. That is true, but in the “Old Age Security Recovery Tax” process, too little is taken back over an income range that is too wide.
I should probably point out here (before I get too terribly carried away) that as you read through this, you will see I’m using examples from three different years 2023, 2024 and 2025. That is because of data availability, or lack thereof. So, not ideal, but still helpful.
The OAS Is Free Money
I think it really is important that OAS recipients understand that this really is free money distributed to seniors out of the government’s large pot of general tax revenues. All working individuals pay into CPP, so we are entitled to every penny of that when we quit working and start drawing on it in our senior years.
The key difference between the Old Age Security (OAS) and the Canada Pension Plan (CPP) is that the CPP is a self-funded social insurance program operating independently of the federal government’s annual budget process. This means it’s not funded by general tax revenues. Instead, it relies on mandatory contributions from employees, employers, and self-employed individuals, as well as investment returns. On the other hand, we don’t contribute to an OAS fund; it’s simply a federal government handout.
Occasionally, when I’ve mentioned this to friends, their immediate comeback is, “well, we paid taxes, and people before us got it, so why shouldn’t we”. The principal reason is, in fact, although we pay Federal taxes, we already directly benefit from those in many other very tangible and more direct ways. These include things like: Health Care transfers to the provinces, Education transfers, Defence, Infrastructure, Public facilities, Public Safety, etc. There is no need to add on free money to all those important benefits.
The OAS Handout is Both a Small and an Enormous Amount of Money
Yes, the title seems a bit contradictory. But, as I hope you will see here, in fact, both statements are true,
OAS Is a Small Amount
For individuals who chose to take their OAS at age 65, the basic OAS maximum monthly payment (before any claw-back) in 2025 was $740.09 per month or $8,881.08 per year. Those who deferred until age 70, received $1,006.52/month (36% more than the base), or $12,078.24/per year. The dollar values are for the 65-74 age group – they change when you hit 75.
In 2025, you need to be making $93,454 in total net income, after allowable tax credits are deducted, before you would begin to lose any OAS. And, $151,668 before you lose it all. Let’s have a look at what proportion of total income OAS payments represent for those amounts. My calculations here are based on folks who chose to start collecting OAS when they were 65.
So, for folks with net incomes that start to exceed the $93,454 level, their OAS represents a maximum of 9.5% of their income. Not a tiny amount for sure, but they’re only having a couple of bucks clawed back, so the claw-back is not a big financial burden immediately. And, if and when their income reaches the $151,668 level where they will have lost all of it, it is only 5.9% of their total net income. Not a terribly impactful amount, so I’m not feeling too much sympathy for them.
But ask yourself this question, do the folks who reach the maximum $151,668 level really lose $8881.08? No, they don’t. Using the Province of Ontario as an example, their average tax rate at that level of income is 27.89%, so $2,476.93 is taken away as taxes. They would only have $6,404.15 ($8881.08 – $2,476.93), left in real money after taxes to lose. More accurately, I probably should have calculated the amount of money left after taxes by basing it upon the marginal tax rate at that level, which is 44.97% ($3,993.82), leaving $4,887.26.
Neither of these amounts after taxes is a life-altering amount.
OAS Is a Large Amount
On the other hand, the total OAS payout to seniors in Canada is an enormous amount of money. The estimate in the 2025-2026 budget is that approximately $85.5 Billon will be spent on “Elderly Benefits”. That is about one-sixth (~18 %) of total federal spending (~$486.9 billion). Elderly Benefits include OAS payouts, and a few other very small pay-outs to extremely low-income pensioners, such as the Guaranteed Income Supplement (GIS) and Allowance Payments.
The other big Budget categories are much smaller. For instance, the Canada Health Transfer (CHT), a major federal-to-provincial health payment, is budgeted to be ~$54.7 billion. While interest on federal debt (public debt charges) — is about $49.1 billion.
This information comes from The Office of the Parliamentary Budget Officer (PBO). The PBO in Canada provides independent, non-partisan economic and financial analysis to Parliament, helping to increase budget transparency, accountability, and the quality of debate by scrutinizing government finances and assessing the cost of campaign promises, acting as an independent “watchdog” for taxpayers’ money. The PBO reports directly to Parliament, not the Executive branch, offering independent economic and fiscal insights.
To sum it all up, the OAS amount isn’t just a large proportion of the Federal Budget, it is an enormous amount and a financial burden for the Canadian government and all taxpayers. It needs to be radically modernized, and soon.
OAS Claw-back Is Not Working
My personal take on the intention of the “Old Age Security Recovery Tax” is that it was designed to recover money given to recipients who don’t really need it, in a methodical and barely perceptible way. I think the process is incredibly flawed. Too little is taken back in the beginning, and the full amount is not totally recovered by the government until recipients have what some would consider a significant amount of income in retirement.
The Claw-back Process
I have described the process in a previous post, but I think it is best to restate the facts every time we discuss the matter. Our most recently completed taxation year was 2024, so that is the example I am going to use here. As you will see, as I work through the numbers, couples benefit much more when it comes to OAS claw-back than single individuals. Not terribly fair.
The inherent unfairness lies in tax laws that allow couples to split a significant portion of their retirement income for tax purposes. This often results in nearly identical net incomes for taxation. Consequently, even though one partner would have had some of their Old Age Security clawed back without income splitting, the couple ends up with no loss.
For Individuals
• In 2024 Claw-back began when an individual made a net income of $90,997
• An individual’s repayment would have been 15% of the difference between $90,997 and the individual’s net income
• Example – Claw-back applicable on income of $96,283 would be ($96,283 – $90,997 = $5,286)
• And 15% of $5,286 is $792.90
• That continued until the individual had a net income of $148,065, at which point the remaining pennies of OAS would have been clawed back.
For Couples
• Each individual in a couple could have made a net income of $90,997 before claw-back began
• This means the couples combined income, or household income, in 2024 could have reached as high as $181,994 before any OAS monies were clawed back.
• AND, they would have had to have an income of $296,130 before they lost the last few pennies.
So, an individual would have to have a net income approaching $150,000 to lose all their OAS in 2024, and almost unbelievably a couple could have had an income of close to $300,000 in 2024 before all their OAS payments were recovered. That’s insane! And I’m not even talking about what happens to these numbers after individuals turn 75 and get an extra 10% OAS thrown in just for being old!
Who is Getting Clawed Back?
According to the most recent Office of the Superintendent of Financial Institutions (OSFI) “Actuarial Report on the Old Age Security Program,” in 2023 (estimated actual) about 7.9% of all OAS beneficiaries were affected by the recovery tax (claw-back).
That 7.9% breaks down into: ~ 2.6% of beneficiaries had full repayment of OAS (i.e. they lost all OAS because their income exceeded the upper threshold), and ~ 5.3% had a partial repayment (i.e. their OAS benefits were reduced). I also read in a BNN Bloomberg article, citing Statistics Canada data, that in 2024 approximately 8.3% of total Old Age Security (OAS) recipients were affected by the recovery tax (claw-back). This amounts to slightly more than 500,000 seniors. According to the 2011 National Household Survey 15.6 % of all senior households had an income that exceeded $100,000. I could not find anything more recent. But, as you will have read above Generation Squeeze claims on their website “About one in five” (20%) experience claw-back, so I would speculate that the $100,000 crowd would be in the (15%-20%) range.
All in all, a fairly small proportion of OAS recipients suffer claw-back. It’s easy to imagine that the 2.6% with the highest incomes didn’t even notice the missing money… or cared.
Generation Squeeze Has a Plan for OAS Restructuring
Generation Squeeze (Gen Squeeze) is a Canadian non-profit, non-partisan think tank advocating for generational fairness. It is the brainchild of founder Dr. Paul Kershaw, a professor at the University of British Columbia. Dr. Kershaw is their most ardent spokesperson. He is also a regular contributor to the Globe and Mail and other media outlets.
From the Generation Squeeze Website:
Here are the basic elements of their OAS related recommendations. Please visit their website if you are looking for additional information, especially if generational fairness is an issue that is important to you personally.
“The fix is simple: retired couples with incomes over $100,000 would take slightly less from OAS. About one in five would see a reduction of roughly $3,200 after tax — while some single seniors would actually receive more.
Canadians would save $7 billion a year. With this, we could:
• Virtually eliminate seniors’ poverty
• Make homes, education, and child care more affordable
• Expand benefits for low-income workers
• Defend Canada’s economy and sovereignty
• Put the brakes on ballooning deficits”
If that has tweaked your interest, you might want to have a look at their short YouTube video explaining what they have in mind in greater detail.
What their plan does not include is a suggestion of further reductions, or other actions, and certainly doesn’t appear to want to harm retirees in any other ways. And that makes sense. They’re not in the “let’s milk the older folks and give more money to the young folks” game. They simply see the OAS as being a financial burden placed on the generations following us and they want to remove financial barriers like that to help provide good quality of life for young people.
As someone who is a member of the “older folks” group, and a direct beneficiary of the OAS program, I am inclined to take a much harder line on this than they do. Yes, I am worried about the next generation, and I do want them to end up as well off as the boomer generation. But I am much more concerned for people who are already retired and struggling financially in retirement. My main goal is to help them by shifting away some of the OAS money from those of us who can quite easily live without it, to them. The fact that this will also help the upcoming generations is a bonus.
