The Danish Parliament decided to establish the Cost-of-Living Allowance Fund in the late 1970s with the aim of managing Denmark’s ‘frozen cost-of-living allowances’. This scheme was a means of automatically adjusting wages to cover the rise in the cost of living.
These allowances were intended to be paid to 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 the Cost-of-Living Allowance Fund with DKK 7.7 billion, which was deposited into 2.5 million members’ accounts. The Cost-of-Living Allowance Fund has not received any contributions since 1980, but since then 1.9 million members have received their savings, and the Cost-of-Living Allowance Fund has disbursed DKK 109 billion as lump-sum pension payments to members, plus tax. At the end of 2020, the assets of the Cost-of-Living Allowance Fund amounted to DKK 32 billion, belonging to approximately 500,000 members.
The Cost-of-Living Allowance Fund pays a lump sum when members reach retirement age and leave the workforce permanently (or when they reach the age of 60).Â
Investment Portfolios and LD Discretionary
Since 1 January 2000, members of the Cost-of-Living Allowance Fund have been able to invest their savings in investment portfolios. It is now possible to choose between five different portfolios.
Members who do not choose to invest in portfolios have all their savings invested in the large collective portfolio, LD Discretionary. This portfolio also includes any savings that portfolio investors have not invested in individual portfolios.Â
