Old Age Security - where are the funds coming from?

Submitted by David on Mon, 2012-01-30 11:37

Here's one example letter advocating that the government do nothing about the Old Age Security payments made to Canadians above the age of 65 (currently). His argument:

Taxpayers have paid for these funds and we all expect to see our dividends from these programs when we reach the entitlement age that is currently set. The federal government, our custodian of these funds, needs to ensure the funds collected are sufficient to pay future obligations, and if they are not, then deal with it!

The problem: unlike the Canadian Pension Plan (CPP) which has resources, Old Age Security as I understand it has always been paid out of general revenue. Basically it's a ponzi scheme - similar to the US's social security system which holds "assets" in the form of IOUs from the U.S. government.

In short: They haven't paid for these funds, they've paid for disbursement to their predecessors. You could try to revise the system, but then you'd basically be creating a duplicate version of the CPP.

This sort of thing makes me somewhat dubious about future political stability. Compare to some data from the recent NYT opinion piece Where are the Liberals:

Others exercise their power transparently and democratically. As Will notes, in 2009, the net worth of households headed by senior citizens was 47 times the net worth of households led by people under 35. Yet seniors use their voting power to protect programs that redistribute even more money from the young to the old and affluent.

Or to quote another source regarding the implications for younger people: (this is another US source)

In general, they will pay far more in taxes than they will receive from transfer programs, and any expansion of elderly entitlements willmake things worse. For example:

  • A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime.
  • The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits.