As a middle-aged pension expert in the Toronto office of the international consulting firm William M. Mercer Ltd., Malcolm Hamilton is an unlikely political firebrand. But put him in front of a crowd of Canadians who take their money seriously, such as the conference of real estate agents he recently spoke to in Ottawa, and Hamilton generates the sort of outrage that makes governments uneasy. His message: Ottawa is making it tougher for you to save for retirement. When he put a chart on his overhead projector showing how much less the proposed federal Seniors Benefit would leave in the wallets of a middle-class, retired couple, some realtors in the hotel ballroom audibly gasped. The system, he argues, is simply not designed to reward hard work and diligent saving. “The government is saying, ‘If you save, we’ll take benefits away,’ ” he told his rapt audience. “And you are supposed to say, ‘Then I guess I’ll save more.’ ”
Hamilton has been at the forefront of a two-year insurgency, waged by a broad coalition ranging from unions to stockbrokers, against the Seniors Benefit—which will replace the current Old Age Security and Guaranteed Income Supplement programs with a single payment. Within the next few weeks,
Finance Minister Paul Martin is expected to announce key changes to the proposal— revisions that could amount to a victory for opponents of the benefit, or spur them to launch an even more determined campaign to kill the scheme. Some observers see in Martin’s bid to come to terms with the quiet but persistent lobby against the plan a signal that Ottawa’s outlook is changing. “The ori„ entation of the government has been very £ strongly towards relief for low-income tax| payers,” says David Slater, a former chairg man of the Economic Council of Canada and 3 a vocal critic of the Seniors Benefit. “Now, I | think they are getting to the point where they g hear the middle class beginning to rumble a little bit—to say the least.”
That rumble grew out of scarcely a murmur back when Martin announced the new scheme in his 1996 budget. The idea was to boost support for lowincome seniors while giving less to rich retirees. Since the change would not take effect until Jan. 1, 2001, and anyone who turned 60 before the end of 1995 could opt to stay with the OAS and GIS package, the response was muted. The plan avoided riling today’s
seniors, whose political power has been feared by federal politicians ever since Brian Mulroney was scolded into backing off from pension reform in a famous confrontation with Solange Denis, then 63, in 1985. But if the Liberals knew enough to steer clear of another clash with the nation’s grandmothers, they may have underestimated
the tenacity of those—like Hamilton—who make a living helping the next generation of seniors plan for retirement.
Investment experts figured out soon after the 1996 budget that the new benefit would cost many middle-income seniors thousands—and Ottawa found it had a fight on its hands. Since early last year, the Retirement Income Coalition, an umbrella group of 21 organizations ranging from the Investment Dealers Association and the Canadian Teachers’ Federation to the Canadian Association of Retired Persons, has been meeting with Martin and his officials to press for change. How far the Liberals are willing to retreat to placate the coalition remains to be seen. “As a government, we are still committed to the initial thrust of the benefit, which is to target benefits to lower-income Canadians,” Martin’s parliamentary secretary, Ontario MP Tony Valeri, told Maclean’s. “The real challenge is making sure that middleincome Canadians still feel they can save for retirement.”
Figuring out how the new Seniors Benefit would work involves a fair amount of arithmetic. The new system will give a maximum $11,420 tax-free annual payment to a single senior with no other income and $18,440 to an elderly couple in the same circumstances. Of course, most seniors have other pensions—including the Canada Pension Plan—and savings; depending on how much, the benefit will be clawed back before it is paid out. For example, a couple with a modest $25,000 in other income before taxes would get $10,320, with the benefit shrinking to a payment of just $1,510 for a couple with a healthy $70,000 in other pre-tax income. In rough figures, single seniors and retired couples with total pre-tax incomes up to about $40,000 will get as much or more as they would under the
SQUEEZING THE ELDERLY
The Seniors Benefit, the centrepiece of Finance Minister Paul Martin’s 1996 budget, has been under sustained attack by critics decrying its clawback provisions. When it replaces the present Old Age Security in 2001, the new program will provide more money for lower-income seniors while greatly reducing benefits for those better off. And financial support will be eliminated entirely at a much lower income level—$78,000 for a couple—than at present. Total income for seniors couples after taxes and benefit clawback under the current and proposed programs:
Ottawa gets ready to bend on the Seniors Benefit
Present Old Age Security
OAS and GIS. But those with incomes over $45,000 would get less from Ottawa than under the current system, with the benefit disappearing entirely for single seniors with incomes of $52,000 or better and couples whose combined incomes are above $78,000.
The government prefers to have the benefit considered as a standalone program. But critics say the real tests are how it compares with the package of support it replaces and how it works in combination with income taxes. The new benefit is to be reduced—or clawed back—more aggressively than the current GIS and OAS payments. One study, by the Canadian Real Estate Association, estimates that while a senior couple with a modest $20,000 in other retirement income would be $559 ahead under the new benefit, a couple with $50,000 would get $4,139 less after the change.
The same study looked at the benefit along with income taxes—treating the clawback as just another form of tax. One example: a retired couple with pretax income of $55,000 from a private pension, RRSPs and the CPP pays more than $16,000 in taxes. The same couple’s Seniors Benefit payment would be $4,510—far lower than they would be eligible for if they had less other income. The clawback that reduced their benefit, combined with regular income tax, effectively puts them in a 46-per-cent tax bracket—much steeper than the 26 per cent combined marginal tax rate and clawback they would pay under the current system. For a couple making $70,000, the combined tax rate and benefit clawback would, in essence, put them in the 60-per-cent bracket, compared with the 41-per-cent marginal rate they pay under the current system.
Hamilton objects to letting the combined tax and clawback climb higher than 50 per cent for anyone—no matter how prosperous. “The hard trade-offs are on this marginal rate issue,” he says. “The question is, ‘How much better off should those who have saved be than those who did not save or saved very little?’ ” The government has pondered that one—and decided that the Seniors Benefit as it is now designed would deny too much to Canadians who have planned well for their retirements. “We’re going to make changes that reflect what the consultations told us,” Valeri said. “And some of what they said is that the clawback rate maybe is a disincentive to middleincome Canadians to put money aside.” As well, he said the government could delay implementing the new benefit beyond 2001 to give people more time to plan their finances around the new system.
Those changes may not be enough to satisfy some of the Retirement Income Coalition’s members. Up to now, the group, whose organizational support comes from Association House, a lobbying firm with high-level Liberal ties, has consulted closely with the finance department. But coalition chairman Charles Pielsticker, who represents an insurance underwriters group, says that the comfortable relationship with Finance could turn more confrontational if the revisions amount to a mere sop. “If there are not real changes,” he said in an interview, “I would say that a large number of people will get very active.”
Keeping the coalition contented could pay political dividends beyond the current debate. Pielsticker said the group intends to stick together to pressure Ottawa in the next big policy thrust— on the registered retirement savings plan and registered pension plan rules. A review of these federal tax incentives for private saving is expected to come in this mandate of the Liberal government, building on last year’s reform of the Canada Pension Plan and the introduction of the new benefit. At issue would be demands to raise the current 20-per-cent maximum on foreign investments in RRSPs and boost the annual allowed contribution. And with RRSPs dominating the investment aspirations of millions of Canadians, that debate could make the battle over the Seniors Benefit seem like a minor spat. □
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