In my previous post, I discussed why financial security in later life matters for older adults, regardless of their work history, whether they have worked only for part of their lives or have never worked at all in a paid job. I also briefly talked about my research, which focuses on the impact of Canada’s Old Age Security (OAS) and Guaranteed Income Supplement (GIS) on the well-being of older adults. Before looking at the impact of these programs, however, it is important to understand where they fit within Canada’s retirement system.
Canada’s retirement income system is traditionally based on three so-called pillars. Although each pillar has a distinct purpose, they are not independent of one another. Instead, they work together to provide financial security for older adults in Canada. In fact, Hajizadeh et al. (2024) argue that the term “layers” may better describe Canada’s retirement income system than the commonly used term pillars. The term “pillars” can give the impression that each component works as a separate, standalone system. While in reality, these components are closely interconnected. To provide context for my research, I will briefly introduce the last two pillars before taking a closer look at the first pillar, which is the focus of this blog series.
When most people think about retirement income, they usually think about a pension earned from a paid job. This is the second pillar of Canada’s retirement income system. It is based on mandatory contributions made during a person’s working life and it includes the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP), and other pensions sponsored by the employer. The main goal of this pillar is to maintain a stable income based on workers’ past contributions and to sustain older adults’ consumption patterns during retirement.
Some people also top up their pensions through personal savings and investments such as workplace Registered Pension Plans (RPPs), Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). These personal savings and investments are what constitutes the third pillar of Canada’s retirement system. Rather than replacing income, this pillar encourages individuals to save some money (wherever possible) for their later days based on their own financial circumstances.
My research, however, focuses on the first pillar. In many ways, this is considered the foundation of Canada’s retirement income system. Unlike the second and third pillars, this pillar is not associated with employment or earnings-based jobs. It, in fact, focuses on providing a basic level of income and financial security for all older adults (aged 65 and over and residing in Canada for at least 10 years), regardless of their working history. This pillar’s main objective is to reduce poverty and it consists of the following components: OAS, GIS, Allowance, and Age Credit. The fund for this pillar largely comes from general tax revenues.
Although OAS is the main component of the first pillar, to have a comprehensive understanding of this pillar, it is better to look beyond OAS alone. OAS provides a universal basic pension, but it does not address income inequality among older adults. Many seniors, especially those with low or no income, continue to experience financial hardship despite receiving OAS. And this is where the GIS becomes specifically important.
To address this issue, the Canadian government started GIS in 1967. Initially designed as a temporary measure, GIS became a permanent part of Canada’s retirement system in 1971. GIS specifically targets low-income seniors to improve equity by ensuring that those who are most economically vulnerable receive additional financial support. To be eligible for GIS benefits, a person must be an OAS recipient and meet the age requirement, discussed above. OAS provides a universal foundation, while GIS recognizes that equal benefits do not necessarily produce equitable outcomes. Therefore, it provides additional support to those with greater financial need.
In my next post, I will discuss in more detail the impact of this income on the overall well-being of older adults.
Photo by – landsmann – via Pexels
