It is LD Pensions’ role to secure the employees’ holiday allowance and, at the same time, to enable employers to retain these funds for as long as necessary – though payments must be made no later than when the employee leaves the labour market.
It is not yet clear how much of the holiday allowance funds will be held by employers and how much will be paid into our scheme.
All employees receive the same return
It is up to employers to decide whether to retain the accrued holiday allowance within the company or to pay it into the Employees' Holiday Allowance Fund. Funds retained within the company are adjusted in line with wage growth. They may also opt for a combination whereby they make contributions for some employees but not for others. Each employer makes their own decision.
The return on the assets of the Employees' Holiday Allowance Fund comprises both the indexation applied to employers’ liabilities if they retain the funds within the company, and the return that may be generated by investing the holiday allowance funds paid in. This means that part of the holiday allowance funds is held as a secure asset by employers, as the risk of loss here is low. Furthermore, no pension returns tax is payable on the return that indexation contributes to the employees' holiday allowance. The other part of the holiday allowance funds is invested by us, and ordinary pension returns tax is payable on this part of the return.
It will not affect individual employees what their employer chooses to do; as the outcome of both the indexation of employers’ funds and the return on the employees' holiday allowance funds will be distributed in such a way that all employees receive the same percentage allocation to their savings. We do not yet know how the distribution will work.
Holiday allowance funds must be managed in such a way as to maximise the benefit to the employees. This means that the aim must be to achieve the highest possible return, whilst taking investment risks into account.
Scenarios for the investment strategy
Employers’ decisions will have an impact on the investment strategy of the Holiday Allowance Fund. We will therefore be working with various scenarios, as there are no clear indications as to how employers will handle outstanding holiday allowance – that is, how many employers will choose to pay the holiday allowance funds into our account immediately, and how many will choose to retain the funds within the company.
All in all, employers have reported holiday allowance funds totalling 108 billion Danish kroner. Following the early payouts, the Employees' Holiday Allowance Fund is expected to hold just over 20 billion Danish kroner.Â
