2021: Major changes and impressive results

2021 brought both major changes and impressive results for LD Pensions. The total assets under management for the two funds fell from DKK 89.4 billion to DKK 53.1 billion. At the same time, invested assets increased from DKK 45.2 billion to DKK 51.5 billion. The return on asset management for the year was DKK 4.0 billion (DKK 3.5 billion after tax and costs).

LD Pensions manages both the Cost-of-Living Allowance Fund and the Holiday Allowance Fund, and it was particularly in the Holiday Allowance Fund that major changes took place again in 2021. On the one hand, in the spring of 2021 there was another round of early payouts of frozen holiday allowance funds – this time, DKK 35.1 billion was paid out. – on the other hand, there were payments to the fund from employers totalling DKK 56.6 billion. These payments have made it possible to reduce LD Pensions’ loans from the state, even though the second round of early payouts was also financed by borrowing. At the same time, LD Pensions has gradually been able to build up an investment portfolio using the funds that are in The Holiday Allowance Fund. For the other fund – The Cost-of-Living Allowance Fund – 2021 was a year of strong returns, few payouts and a stable net worth.

The financial markets in 2021

Strong returns have generally characterised the results for 2021, including in LD Pensions. The roll-out of vaccinations and the reopening of economies led to solid global growth, which, combined with more accommodative monetary and fiscal policies in both Europe and the US, drove up share prices. Rising inflation has also been a key theme in 2021, and uncertainty over interest rate rises had a significant impact on the bond markets. Danish mortgage bonds, in particular, have had a difficult year, as high activity in the Danish housing market created a need for large-scale issues of new bonds in a market where investors were reluctant to buy bonds specifically.

The Cost-of-Living Allowance Fund

High returns on shares boosted savings both in LD Discretionary, which accounts for 88 per cent of the accrued cost-of-living allowance funds, and for members with individual investment choices, many of whom have substantial portions of their savings invested in equity funds.

In LD Discretionary, the return on listed shares was 28.1%. Investments in credit bonds made a positive contribution of 2.8%, whilst high-grade bonds made a negative contribution, resulting in a loss of 0.8%. Members were credited with a total return of 8.3 per cent, which is a respectable result given the moderate investment risk in LD Discretionary.

The Holiday Allowance Fund

Members with accrued holiday allowance funds saw the value of their savings increase by 4.6 per cent based on the 2021 results and a profit carried forward from 2020. The adjustment is after pension return tax.
The investment portfolio was being built up in 2021. At the start of the year, funds had been transferred for investment solely from FerieKonto and the holiday funds. From February 2021, employers were able to make voluntary holiday allowance contributions to the Holiday Allowance Fund, thereby avoiding paying additional indexation charges whilst retaining the funds as liquidity within their companies. To mitigate losses arising from early payouts in the spring of 2021, part of the employers’ payments was held in cash at zero interest. It was therefore not until the autumn that the investment portfolio was built up and, at the same time, strengthened with a greater focus on risk assets. It is therefore highly satisfactory that a return on investment of 7.5% was achieved. The funds held by employers are subject to indexation, which is set by the Minister for Employment once a year. As such, these funds also contribute to the return attributed to members’ assets. In 2021, funds held by employers yielded a return of 1.9 per cent.

Key facts

LD Pensions

• LD Pensions is responsible for both the Employees' Holiday Allowance Fund and the Cost-of-Living Allowance Fund. The two funds form part of the same legal entity and share the same organisational structure.
• The total assets in LD Pensions at the end of 2021 stood at DKK 53 billion. Of this, the Cost-of-Living Allowance funds accounted for DKK 31 billion and the Holiday Allowance funds for DKK 22 billion.
• The consolidated return on investment for LD Pensions was just under DKK 4.0 billion, of which DKK 2.8 billion was attributable to the Cost-of-Living Allowance funds and just under DKK 1.2 billion to the Holiday Allowance funds.

The Holiday Allowance Fund

• 847,000 members
• Assets of 22 billion Danish kroner
• Return on investment of 7.5%
• Only the net return is reported, i.e. the return after pension return tax and costs have been deducted. The return is therefore not directly comparable with returns on investment funds and pension products.
• 68,400 employers have chosen to retain holiday allowance funds within the company
• Employees had the option of having their frozen holiday allowance paid out in two early payment rounds in autumn 2020 and spring 2021 respectively. In the first round, DKK 52.1 billion was paid out. In the second round, DKK 35.1 billion was paid out. Almost 900,000 employees chose to continue saving their frozen holiday allowance funds.

The Cost-of-Living Allowance Fund

• 473,000 members
• Assets of 31 billion Danish kroner
• Return on investment of 8.3%
• The Cost-of-Living Allowance Fund offers its members the opportunity to invest in various portfolios. This can be done at very low cost. For example, funds can be invested in a portfolio of global shares with annual investment costs of 0.43%. In addition, account management fees will amount to a maximum of 0.18%. These are attractively low costs.