Old Age Security Rates and the Consumer Price Index

Old Age Security (OAS) rate increases are legislated under the Old Age Security Act. They are calculated four times a year (January, April, July and October) using the All-Items Index from the Consumer Price Index (CPI) so that benefits keep up with the cost of living.

Consumer Price Index

Developed by Statistics Canada, the CPI is a measure of the rate of price change for goods and services bought by Canadian consumers. It is the most widely used indicator of price changes in Canada.

The CPI is obtained by comparing, through time, the cost of a fixed basket of commodities purchased by Canadian consumers in a particular year. Since the basket contains commodities of unchanging or equivalent quantity and quality, the index reflects only pure price movements. This "basket" of goods consists of food, shelter, clothing, transportation, health care and other average household expenditures.

Statistics Canada is currently using 2002 as the base year. In 2002, the CPI was equal to 100. This means that the basket of goods in 2002 cost Canadians $100. The CPI in July 2009 was measured at 114.7, meaning that the same basket of goods that cost $100.00 in 2002 cost $114.70 in July 2009.

OAS Rates

OAS rates are adjusted four times a year using a three-month moving average method. The moving average method is a statistical method used to reduce the effect of sharp changes in the CPI and thus allows for faster adjustment of OAS benefit rates to cost of living increases.

The rate increase is the percentage change between the average of the most recent 3 month CPI period and that of the last 3 month CPI period in which OAS rates increased. If the cost of living has decreased over the most recent 3 month CPI period, the calculation of the rate change will produce a negative amount. However, as prescribed under Old Age Security Act benefit rates do not decrease; they stay at the same level when there is a decrease in the cost of living. The highest 3 month average CPI remains the reference level until the most recent average CPI climbs above that of the reference level.

As an example, the rate increase for the April to June 2010 period was calculated by comparing the average CPI for the November 2009 to January 2010 period to the average CPI for the May to July 2008 period, which is the last period in which OAS rates increased.

Since the change in average CPI for these periods was negative, the rates will remain the same as in the previous quarter. The following shows how the CPI was used to calculate the OAS rates for this period:

April - June 2010 Rates

CPI increase compared to the OAS increase

The following table illustrates the changes in the cost of living compared to the changes in the OAS rates over a 5-year period. It shows that, since January 2005 the OAS rates have been slightly greater than the increase in the CPI, 9.6 percent and 9.3 percent respectively.