Introduction

 

Foundation of LD
The Danish parliament decided to found LD at the end of the 1970s with the object of managing Denmark's “frozen cost-of-living allowances”. This concept was a way of automatically adjusting the wages to cover the increase in cost of living. These allowances were meant to be paid to the employees to offset inflation. However, the government decided to pay them as a supplementary lump sum pension upon retirement. In 1980, the government therefore entrusted LD with EUR 1,036m deposited in 2.5m member accounts. LD has not received any contributions since 1980, but its assets have increased to about EUR 7m because cumulative returns exceed the payments made by the fund. Since 1980 LD's investments have yielded an average return of 10.5 % per year after tax and costs.

 

Pensions
LD pays a lump sum when a member reaches retirement age and leaves the workforce permanently (or when a member reaches the age of 60). Since its formation in 1980, LD has paid out funds from 1.7m accounts, which leaves the number of accounts where balances have not been distributed at 0.9m.

 

A new act on LD in 2004
In March 2004, the Danish Parliament adopted a new act on LD authorising LD to manage capital for other pension institutions. Furthermore, the act made it easier for members aged 60 to withdraw their savings from LD and to allow members to move their savings to other pension institutions. In order to adjust LDs investment portfolio to the consequences of the new act, LDs board has taken various initiatives to render investments more liquid, i.e. by only investing in quoted assets in the future.

Since the adoption of the new act in 2004 LD has been working on aligning its organisation to the new terms. In 2005 this led to the formation of the asset management company Maj Invest A/S, which provides LD and other clients with investment advisory services. The company was established as a subsidiary to LD as a carve out process from LDs investment organization.

 

Outsourcing of investment advisory services
As part of the establishment of the asset management company, Maj Invest A/S, LD entered into a 5 year contract regarding investment advisory services for the major proportion of LDs investment portfolio on a cost neutral pricing model. The contract with Maj Invest expired at the end of 2010 and a procurement process resulted in selection of Investment Managers from the beginning of 2011. See more information on the procurement process and the results here.

 

Investment pools and LD Discretionary Investments
Since 1 January 2000, LD's members have been able to invest their savings in investment pools. It is now possible to choose between 10 different pools of which four are offered by the four largest mutual funds in Denmark. Members, who do not choose pools, invest all their savings in the large joint portfolio, LD Discretionary Investments. This pool also contains any savings which the pool investors have not invested in pools. The pool assets represent about 10 % of LD's total assets. About 10 % of the members had opted for pools in respect of part of or all of their savings.