The Rising Cost of Old Age Security in Canada

Old Age Security is Canada's oldest and most expensive federal program. It is also the simplest: if you're 65 or older and have lived in Canada long enough, the government sends you a cheque every month. No contributions required, no employment history needed - just residency. It comes straight out of general tax revenue, paid for by working Canadians in real time.

When the Old Age Security Act came into force on January 1, 1952, it paid a flat $40 per month to every Canadian aged 70 and over. That was considered generous at the time - roughly equivalent to $440 in today's dollars. The program replaced the humiliating means-tested provincial pensions that had been in place since 1927, and it was a genuine breakthrough: for the first time, no Canadian senior had to prove they were poor enough to deserve help.

Today, the maximum monthly OAS pension is $742.31 for seniors aged 65 to 74, and $816.54 for those 75 and over (after the permanent 10% increase introduced in July 2022). Total spending on elderly benefits - OAS plus the Guaranteed Income Supplement plus Allowance payments - hit an estimated $85.5 billion in 2025-26, making it the single largest line item in the federal budget. That is more than the Canada Health Transfer, more than equalization, and more than the entire defence budget combined.

The raw numbers tell the story better than anything else. In 2015, total spending on elderly benefits was $44.1 billion. By 2024, that figure had risen to roughly $76 billion - a 72% increase in just nine years. The Parliamentary Budget Officer now projects that spending will blow past $100 billion by 2029-30, and the OSFI's 18th Actuarial Report projects it will reach $136.6 billion by 2035 and an astonishing $276.5 billion by 2060.

Three forces are driving this: more seniors (the baby boomers are retiring en masse), longer lives (a 65-year-old Canadian today can expect to live past 85), and policy choices like the 2022 permanent 10% increase for those 75 and over, which added roughly $3 billion per year in new costs.

The raw dollar figures are dramatic, but the more meaningful measure is OAS spending as a percentage of GDP - how much of the economy the program consumes. This ratio tells us whether the program is actually becoming more burdensome or simply growing with the economy.

The answer, according to OSFI's actuarial reports, is nuanced. OAS spending as a share of GDP was 2.03% in 1970, rose to 2.65% in 1992, then declined to 2.05% in 2008 as the economy grew faster than benefits. Since then, the ratio has been climbing again as boomers retire, reaching an estimated 2.68% in 2023. It is projected to peak at roughly 3.0% in the early 2030s, then gradually decline back to around 2.64% by 2060 - comparable to early-1990s levels - as the boomer bulge passes through the system and younger cohorts (smaller in number) replace them.

The maximum monthly OAS payment has grown from $40 in 1952 to $742.31 in January 2026 for those aged 65-74, and $816.54 for those 75 and over. That sounds like enormous growth, but much of it simply reflects inflation. In real (inflation-adjusted) terms, the purchasing power of the OAS pension has roughly tripled since 1952 - meaningful, but far less dramatic than the 18x nominal increase suggests.

The annual maximum benefit for a 65-74 year old is now roughly $8,908. For those 75 and over, it is about $9,798. OAS benefits have been indexed to the Consumer Price Index since 1973, with quarterly adjustments that can only go up - never down. When you add the Guaranteed Income Supplement for low-income seniors (maximum $1,108.74/month for single seniors), the combined floor of income support reaches over $22,000 per year.

Here is the core of the problem. In 1971, there were roughly 7 working-age Canadians for every senior collecting benefits. Those 7 workers shared the tax burden of supporting one retiree - and the load was light. By 2006, the ratio had fallen to about 5 to 1. Today, it stands at roughly 3 workers per retiree. By the 2050s, OSFI projects it will approach 2 to 1.

The math is unforgiving. In 1966, only 7.6% of Canada's population was 65 or older. By 2021, that had risen to 18.5%. Projections show it reaching 25% by 2060 - meaning one in four Canadians will be a senior. The fertility rate, which was 4.0 children per woman in the late 1950s, has fallen below 1.4 - well below the replacement rate of 2.1. Fewer babies today means fewer workers tomorrow.

The OAS program has been modified many times since 1952, but the general trajectory has been one of expansion - more generous benefits, wider eligibility, lower age requirements. The one attempt to meaningfully constrain the program (Harper's plan to raise the age to 67) was reversed before it ever took effect.

OAS has become the flashpoint of a growing debate about intergenerational fairness in Canada. The program's defenders point out that it has been spectacularly successful at reducing senior poverty - from over 30% in the mid-1970s to under 4% by the mid-1990s. OAS benefits represent an average of 23% of seniors' after-tax income, rising to 65% for those in the lowest income bracket. By any measure, it works.

But critics - particularly younger Canadians and organizations like Generation Squeeze - argue that the program has become poorly targeted. A couple with household income exceeding $300,000 can still receive partial OAS benefits. The typical 35-year-old now pays an estimated 20-40% more in taxes for OAS and medical care than today's retirees paid as young people to support seniors in their day. Meanwhile, those same young workers struggle with housing costs, student debt, and stagnant wages.

OAS spending is projected to peak at about 3.0% of GDP in the early 2030s before gradually declining to 2.64% by 2060 as the boomer wave passes. That long-term trajectory looks manageable - but the next 10-15 years are the hard part. Between now and 2035, the number of beneficiaries will grow from 7.5 million to over 10 million, and annual costs will rise from $85 billion to nearly $137 billion.

The political debate is heating up. The Bloc Quebecois has demanded extending the 10% increase to all seniors (not just those 75+), which would add an estimated $3+ billion per year. Generation Squeeze has proposed lowering the clawback threshold from $93,454 to $100,000 in household income, which could save $7 billion per year and redirect it to low-income seniors and younger Canadians. The Carney government faces enormous pressure from all sides as it navigates its first budget.

One thing is certain: the era of easy choices on OAS is over. With federal debt projected to reach $3 trillion by 2030 and interest payments alone exceeding $76 billion per year, something will have to give. Whether that means higher taxes on younger workers, reduced benefits for wealthier seniors, a higher eligibility age, or some combination - that is the defining fiscal question of the next decade in Canada.