Budget confirms Old Age Security push to age 67
The change, which also applies to the Guaranteed Income Supplement, was confirmed in Thursday's federal budget. It will affect anyone born on or after April 1, 1958.
"We want to make sure OAS is there for people in the future, and to ensure that it's there for people when they need it," Flaherty said.
OAS reform will be gradually phased in over a six-year period, starting in April 2023.
Flaherty said OAS will come under huge strain as the Baby Boomer generation, with its sheer size and longer life expectancy, leaves the workforce and its poorest members seek the security program for added financial assistance.
"The Old Age Security program was designed for a much different demographic future than Canada faces today," Flaherty said in prepared remarks.
"In the 1970s there were seven workers for every one person over the age of 65. In 20 years there will be only two. In 1970 life expectancy was age 69 for men and 76 for women. Today it is 79 for men and 83 for women. At the same time, Canada's birth rate is falling."
The government maintains that without reform, the OAS program will increase from a total cost of $38 billion in 2011 to $108 billion in 2030.
Prime Minster Stephen Harper first floated the idea of OAS reform last January as he met with international business leaders in Davos, Switzerland. Although he said at the time it was only under consideration, it immediately triggered a public backlash.
To soften the blow on Thursday, the government said that Canadians will be able to voluntarily defer OAS for up to five years, starting on July 1, 2013. It would mean a higher, actuarially adjusted pension.
The government says it's helping Canadians invest in their future under a "three-pillar retirement income system" that includes:
• OAS, with its maximum annual pension of $6,481, and Guaranteed Income Supplement, with a maximum annual benefit of $8,788 for singles and $11,654 for couples.
• Canada Pension Plan and Quebec Pension Plan. The budget says CPP is "sustainable at the current contribution rate of 9.9 per cent of pensionable earnings.
• Voluntary tax-assisted savings, such as the tax-free savings account first introduced in the 2008 budget, and pooled pension plans, designed to help Canadians not under private pension plans, such as those who are self-employed.
Through retirement mechanisms like the tax-free savings account, the Conservatives are giving Canadians more ways to save for their future.
However, those tools will not help those with low incomes who depend the most on OAS, and those who lack the financial means to invest properly in their retirement.
Economist Fred O'Riordan said it's becoming increasingly more important for Canadians to take charge of their own long-term financial wellbeing.
"When it comes to individuals and their decision making, some individuals can be myopic -- they will consume more than they should in their younger income earning days, and have under-contributed to their retirement benefits," he said.
One issue, highlighted by Bank of Canada governor Mark Carney, is that some Canadians have taken advantage of low lending rates but are now overextended, and could come under great financial stress when interest rates start to rise.
That could spell major trouble for their retirement, and ultimately could cost the provinces and territories.
"There is that risk. If they've no other means of support -- and OAS is very minimal -- they're going to be on welfare and that's a provincial responsibility to pick up that slack," said O'Riordan.
In Thursday's budget, the government said it will "compensate provinces and territories for net additional costs they face resulting from the increase in the age of eligibility for OAS benefits," but did not offer specific details.
