echo interview with Pascal Kuchen, Managing Director of La Collective de Prévoyance Copré, an elipsLife reinsurance partner

elipsLife echo: Mr Kuchen, La Collective de Prévoyance Copré is a semi-autonomous pension fund in the form of a collective foundation. How many companies are associated with the foundation?
Pascal Kuchen: Currently we have just under 1000 company members with around 15500 insured individuals.

Does Copré only operate in the west of Switzerland?
No, apart from Tessin, we’re active across the whole country. Approximately 70% of our clients are located in West Switzerland and the remaining 30% in the German-speaking part of the country. We’re not as big as, say, Axa or Swiss Life but we are among the top three semi-autonomous pension funds in West Switzerland. Our market share is expanding in the German-speaking region and it’s there we have the larger growth potential because the market is simply bigger. I should mention in passing that, despite the Corona crisis, the number of inquiries from German-speaking Switzerland has remained steady at last year’s level. This is in contrast to the western region where demand has fallen noticeably.

In your opinion, why should small and medium-sized companies join a semi-autonomous collective foundation such as yours rather than a comprehensive insurer?
Organisations such as ours are able to offer more attractive terms. Compared to comprehensive insurers, we clearly have superior conversion rates. For example, in the non-obligatory space Swiss Life offers 4.8% compared to Copré’s 6.5%. We also offer more attractive interest rates on savings capital, and our risk premiums are lower. That being said, the semi-autonomous foundations can run the risk of insufficient coverage. Should the stock market go through a lengthy rough patch, a customer with a fully comprehensive insurer can still sleep soundly. In the same circumstances, someone with a semi-autonomous foundation might start to worry about what’s going to happen next. This situation could lead to painful remedial measures that wouldn’t be necessary with the comprehensive insurers. Moreover, the latter provide guarantees in respect to the degree of coverage and benefits. The semi-autonomous foundations don’t. Therefore we have greater flexibility in respect to our investment strategies. For example, Copré has a substantial portion of non-stock market listed investments in its portfolio, such as in real estate and in the alternative space. This way, we’re able to routinely achieve results way above the average.

What differentiates Copré from the other semi-autonomous pension foundations?
Copré is completely independent and is not subject to vested interests. Moreover, we’re distinctively positioned through our proximity to customers, our transparency and the investment strategies we pursue. Not all pension foundations have an investment portfolio divided between one-third stocks, one third real estate and one third bonds and alternative instruments. Regarding the real estate portion, all these are exclusively direct investments; we own over 100 properties spread across the whole of Switzerland.

What’s your view on the trend towards consolidation among the pension foundations?
There’ll no doubt be further consolidation. It’s a fact that numerous collective pension foundations have similar business models and the time will come when it makes sense to join forces with one another. This way, we can generate synergies and lower costs. By the way, pension foundations also benefit from another kind of consolidation trend: More and more companies are shedding their in-house foundations and switching to an external collective arrangement. With Covid-19, this trend will gain momentum.

Before the outbreak of Covid-19, the Federal Council had developed a proposal for the reform of Switzerland’s pension system (AHV). The purpose is to place the funding of the first pillar on a more secure footing through 2030. Given the new circumstances we find ourseleves in, do you think the proposal needs to be modified?
The Corona crisis has not altered the urgent need for AHV reform. Restructuring the first pillar is a must. That said, the question now is whether the proposal still has the same priority as before the outbreak of the crisis. Because regardless of how the reform is structured, it’s going to cost money. And the federal government has already spent a great deal of money in mitigating the impact of Covid-19. So it’s a distinct possibility that the AHV reform will disappear from the political agenda, despite the urgency of the issue.

Even though it’s way too early to accurately assess the economic consequences of the Corona crisis, what do you think the key features of a future reform of the AHV will be?
The key features remain the same: These are funding, retirement age and our ageing society. The Corona crisis doesn’t change these factors at all. Switzerland’s pension system is ‘work in progress’ and this will still be the case tomorrow and the day after that. The Federal Council’s proposal for AHV reform is certainly not perfect. But in respect to the retirement age, the overall structure and the funding issue, it does represent a reasonable proposition.

Where does the pension age need to be in order to place the AHV on a solid footing in the long term? 
We should let the facts speak for themselves: All of us are living longer and women longer than men. So, in my view, it’s logical that the retirement age has to be adjusted to reflect this new situation.  The question is rather whether it should be 65 or 67. As a pension specialist, I always try to think pragmatically. From this angle, a retirement age for women of 65 is absolutely justified. It’s also a fact that in many areas of the economy, women do not earn as much as men, which by the way is not the case at Copré. But wage disparities are a separate topic and shouldn’t be conflated with discussions about the retirement age.

Where do you think the pain threshold is in respect to sourcing additional financing via raising value-added tax?
Before Covid-19, I’d have said the pain threshold for SME’s is at 1%. Meanwhile, this has become no longer a question of pain thresholds. On the contrary, it’s now about priorities. Reducing indebtedness following the Corona crisis will inevitably lead to raising value-added tax. Whether and how much leeway still remains to restructure the AHV using the same method remains to be seen. 

The Federal Council had also initiated reform of the second pillar. To what extent has Covid-19 affected this situation?
Not at all. We’re all agreed that a reform of the second pillar is necessary. The risk is that, here too, this long overdue reform could be put on the back burner.

In view of the Corona crisis, should existing retirees be asked to contribute towards the financial restructuring of the second pillar, or are already acquired pension rights off-limits?
In Switzerland, such a move would be off-limits, with or without Covid-19. Whether politically, economically or from a societal point-of-view, it’s not realistic to think you can cut people’s pensions by, say, 10% just because a pension fund has problems with human longevity. It would never be accepted – and it wouldn’t be fair either. A person who is still professionally active is able to adapt to changing circumstances and save more, simply because he or she still has time to do so. A pensioner doesn’t have this option.

Compared to other systems abroad, Switzerland’s 3-pillar system has proved its worth over time. What’s your opinion? 
In my view, ours is a very sound, well balanced system. Of course, the first pillar does have its problems, for example with supplementary benefits. And reducing the Corona debt is going to make tackling this issue even more difficult. However, the Swiss pension system fulfills its purpose of protecting retirees from falling into poverty. The second pillar with its obligatory and non-obligatory components continues to be perfectly equipped for the job it’s supposed to do. However, I do see room for improvement when it comes to the third pillar: I think raising the tax-free maximum contribution from currently CHF 6,826 per year by, say, a third would be a sensible move.

So, despite Covid-19, should the state support the third pillar in order to relieve pressure on the first and second pillars?
Absolutely, yes. But once again on the topic of the three-pillar system: Based on earlier professional experience, I’m well acquainted with several different pension schemes operating in Europe – and I can say with confidence that our system is still the best.