With the introduction of a new Holiday Entitlement Act in September 2020, a full year’s accrued holiday entitlement – equivalent to five weeks – will be frozen for employees who have been in employment for the entire preceding period. The Holiday Entitlement Committee proposes that LD be given responsibility for the frozen holiday allowance until payouts are made upon employees’ transition to the state pension or, where applicable, earlier withdrawal from the labour market.
Why freeze in a fund?
The need to freeze holiday allowance funds arises when a new holiday law comes into force, which is expected to happen on 1 September 2020. The new holiday law is based on the principle that the accrual of holiday entitlement and the opportunity to take holiday must occur simultaneously. After just one month’s employment, employees will be entitled – but not obliged – to take 2.08 days’ holiday. When the new Act comes into force, employees will have accrued holiday entitlements under the current Holiday Act. Partly in view of the labour supply, the Holiday Entitlement Committee does not consider it appropriate for employees to have double holiday entitlements during the transitional year between the old and new holiday legislation. It is therefore proposed that the surplus holiday allowance funds be frozen in a fund.
Consideration for employers
The establishment of a fund is also in the interests of employers. The Holiday Entitlement Committee has proposed that employers may owe the fund the outstanding holiday allowance under the old Holiday Entitlement Act until such time as the fund is required to pay out the funds to the employees. This means that employers will not have to find the liquidity to pay out the outstanding holiday allowance under the old Holiday Pay Act at the same time as employees are continuing to accrue new holiday entitlements. With the fund in place, the transition to the new Annual Leave Act will be less of a strain on employers’ liquidity. It is expected that many employers will make use of the option to borrow money from the holiday fund for a number of years. Conversely, an employer may at any time pay the full amount owed into the fund, thereby clearing the debt and releasing themselves from the obligation relating to the surplus holiday allowance funds under the old Holiday Pay Act.
The two pillars of asset management
The management of the holiday fund’s assets will follow the same structure as the management of the funds in Dyrtidsfonden. However, the management of the holiday fund’s capital will be based on two pillars – partly loans from employers and partly frozen holiday allowance funds that have been transferred to the LD’s investment portfolio.
The Holiday Pay Committee estimates that around DKK 25 billion will be transferred to LD for investment, whilst the remainder will remain with employers for shorter or longer periods. However, this estimate is subject to considerable uncertainty, and it must be expected that the volume of loans to employers will vary over time. For the youngest employees, the loans may run for over 50 years.
A good match
LD’s management structure in the investment sector is flexible, and the assets in the holiday fund can be easily integrated into LD’s existing fund structure. The investment partnership with the LD scheme ensures low costs and access to qualified investment advisers from day one in all key areas.
