Summary of the 2020 Annual Report
(News article published on 5 March 2021)
Despite record-breaking disbursements, the assets for the holiday allowance and cost-of-living allowance stood at DKK 89.3 billion at the end of 2020. This means that, in the same year that LD Pensions is celebrating its 40th anniversary, its assets have reached a record high.
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LD Pensions manages both the Cost-of-Living Allowance Fund (The Cost-of-Living Allowance Fund) and the Holiday Allowance Fund (The Holiday Allowance Fund), and as shown in the 2020 annual report, it is the holiday allowance in particular that has contributed to the record-high payout of DKK 56.4 billion.
In autumn 2020, three weeks’ holiday allowance was paid out early. A total of DKK 52.1 billion was paid out to employees. This provided a significant boost to consumption, at a time when parts of the business community had been adversely affected by coronavirus restrictions for a long time. A total of DKK 57.3 billion remains in the Holiday Allowance Fund. This figure was reported by employers after deducting the total payments made in 2020.
Payments of the cost-of-living allowance were also high. Denmark’s first lockdown, in spring 2020, caused significant disruption to the financial markets, which led to an increase in cost-of-living allowance payments that was considerably higher than the usual level. DKK 4.1 billion in cost-of-living allowance was paid out (an increase of 8.5 per cent since 2019), of which advance tax paid to the state (due to the tax rebate) amounted to DKK 1.4 billion.
The Holiday Allowance Fund increased in value by DKK 0.5 billion
The frozen holiday allowance is held both in the Holiday Allowance Fund and by employers. Approximately 10 per cent of the frozen holiday allowance, amounting to DKK 10.7 billion, was held in the fund at the end of the year and is invested by LD Pensions. The return on investment in 2020 was 3.8 per cent, measured as a time-weighted return.
At the end of the year, 90 per cent of the holiday funds were still held by employers, who, from 1 September 2020 onwards, are required to pay interest on these assets at a rate indexed to wage growth. LD Pensions has estimated the interest on these assets at 1.3 per cent, corresponding to 0.4 per cent since 1 September 2020.
The return on investment and the interest payments (indexation) on funds retained by employers yielded a total result of DKK 693 million in 2020, of which the fund must pay DKK 123 million to the state as interest on government funding for early disbursements in 2020. This leaves the members with a net return of DKK 497 million after PAL (pension return tax) and costs. This figure must be viewed in the context that only a small proportion of the holiday allowance was invested in 2020. Furthermore, the assets were only invested for part of the year, and interest payments (indexation) on the assets remaining with the employers alone were in effect for four months, namely from 1 September to 31 December 2020.
LD Pensions has therefore increased the holiday allowance by DKK 0.5 billion as a result of its performance in 2020. For individual employees, this results in a positive adjustment to their assets of 0.9 per cent as at 31 December 2020. The 0.9 per cent adjustment is net of PAL tax and costs.
The Cost-of-Living Allowance Fund also grew in 2020
The total investment return for the Cost-of-Living Allowance Fund is allocated as follows: DKK 769 million in LD Discretionary, which is LD Pensions’ largest investment portfolio and accounts for 88 per cent of members’ assets, and DKK 534 million in the other portfolios within the Cost-of-Living Allowance Fund. The total equity return stood at 12.5 per cent, whilst bond investments yielded 0.9 per cent. In LD Discretionary, the total investment return stood at 3.2 per cent. The Danish Equities portfolio delivered an extremely high return of 36.1 per cent. The lowest return was recorded for LD Short-Term Bonds, which ended at -0.2 per cent.
In LD Discretionary, investments in high-grade bonds and equities contributed 1.2 per cent and 6.0 per cent respectively to the result. Credit investments had a negative impact of 0.2 per cent on the result.
Low-cost figures in LD Pensions
Administrative costs account for 0.13% of the assets relating to the cost-of-living allowance and only 0.03% of the total assets relating to the holiday allowance. The extremely low costs for the holiday allowance are partly due to the fact that employers cover part of the current administrative costs. The costs for the cost-of-living allowance have risen due to increased costs associated with a new supplier providing pension administration and member services. However, this has not placed a burden on members, who have continued to pay 0.08 per cent of the assets in administrative contributions.
LD Pensions
- LD Pensions’ total assets at the end of 2020 amounted to DKK 89.4 billion. The cost-of-living allowance amounted to DKK 32.1 billion, and the holiday allowance amounted to DKK 57.3 billion.
- The consolidated investment return for LD Pensions amounted to approximately DKK 1.9 billion, divided between the Cost-of-Living Allowance Fund, with just over DKK 1.3 billion, and the Holiday Allowance Fund, with almost DKK 0.6 billion.
