Up to the end of June 2021, LD Pensions had generated a total return of DKK 1.2 billion from managing the frozen holiday allowance funds. This result also includes a carry-over from 2020, which was only credited to employees’ accounts in 2021. During this period, LD Pensions has gradually expanded its management of holiday allowance funds, whilst at the same time making early payouts on a significant scale.
The attributed return of 2.4% is a net return after costs and pension return tax, calculated on the basis of the results as at 30 June 2021.
The return consists partly of interest income on Holiday Allowance funds held by employers, and partly of a return on investment from funds paid into the fund. Interest income has contributed a total of DKK 0.6 billion, and investment returns have contributed DKK 0.6 billion.
Since February 2021, employers have paid in a total of approximately 30 billion Danish kroner. To this must be added 10.8 billion Danish kroner, which was transferred from FerieKonto and holiday funds in 2020.
LD Pensions has used the payments to repay DKK 28.2 billion of its loan from the government. The loan from the government was granted to finance early payouts in autumn 2020 and spring 2021, which totalled DKK 88 billion. The portion of employers’ payments not used to repay the government loan is invested and generates returns for the benefit of the remaining employees.
We are satisfied with the return, given the opportunities we have had. The interest income from funds held by employers provides a solid foundation for the return, and we have achieved a satisfactory return on the funds we have been able to invest.
During the early payouts this spring, LD Pensions has focused on minimising the risk of investment losses. The deadline for applying for early payouts expired on 1 June 2021, and LD Pensions can therefore now begin to adopt a more long-term investment strategy for the funds paid into the fund.
At the start of the year, 90 per cent of holiday allowance funds were held by employers, and LD Pensions owed the state just over half of the 10 per cent that had been paid in. At the end of June, 64 per cent was held by employers.
“The payments from employers, and the fact that we have now moved past the early payouts, provide us with a far better framework for generating a good return than we have had so far,” says Dorrit Vanglo.
Private employers lead the way in payments
Private employers account for the majority of voluntary payments in the first half of 2021. The Government has reached an agreement with the Local Government Denmark to explore the possibilities for local authorities to make voluntary payments to the Holiday Allowance funds and thereby avoid the interest at which the funds are indexed.
“These voluntary payments can be seen as an indication of strong liquidity among the companies making them. We expect to see more payments from public-sector employers as the economic framework falls into place. This will provide further support for an investment strategy with slightly higher risk and, consequently, greater potential for returns,” says Dorrit Vanglo.
Employers will soon be billed for DKK 2 billion. In July,
employers will receive invoices for amounts due for payment on 1 September 2021. This primarily concerns amounts relating to employees who have reached or will reach state pension age by 1 March 2022, as well as amounts relating to employees for whom up to DKK 1,500 was reported. For these groups, the reported amounts will be charged, plus indexation, up to 31 May 2021.
Employers who have made voluntary payments will also be charged a pro rata indexation at a rate of 1.5 per cent per month or part thereof from 1 September 2020 up to and including the month in which the fund received the payments from the employer.
The total amounts due for payment as at 1 September 2021 are estimated to be in the region of DKK 2 billion. Of the total payments received, around 80 per cent will go towards repayments on the government’s loans, and the remainder will be invested.
Employers who do not make contributions on behalf of any employees must confirm to the fund that they will retain the holiday allowance funds within the company; otherwise, the funds will become due for payment.
Payouts in October
Employees who are entitled to have their holiday allowance paid out on 1 October 2021 have received a letter regarding the payouts. The payouts will primarily relate to those reaching state pension age, as well as to small accounts with reported amounts of up to 1,500 kr. It is estimated that 211,000 members will be eligible for payouts at the start of October.
For those who are due to receive their state pension, it will be possible to defer payouts if they wish to continue saving.
