LD Pensions' annual report 2022: LD Pensions succeeded in limiting losses for its members

Members with accrued holiday allowance funds were credited with a return of -7.9%, whilst members with accrued cost-of-living allowance funds received a return of -8.2% in the LD Discretionary main fund. This result was driven by general market trends, with falling equity and bond markets. However, positive returns were achieved on inflation hedging and the revaluation of holiday allowance funds that employers have chosen to retain within their companies. This, together with a robust portfolio composition, has mitigated the negative developments in the financial markets.

In response to developments in the financial markets and significant market volatility, LD Pensions reduced the risk in its portfolios on several occasions, including by reducing its equity holdings. However, in this challenging investment environment, negative returns could only be limited, not avoided.

The latest figures from Danmarks Nationalbank show that the average return for Danish investment funds with mixed assets was -13% in 2022. Similarly, Finance Denmark’s investment fund statistics show that the return for the vast majority of Danish listed investment funds with mixed assets was between -10% and -15% in 2022.

Financial markets in 2022

The year was characterised by surprisingly high inflation, sharp rises in interest rates and uncertainty regarding economic growth, partly in light of Russia’s invasion of Ukraine. It became clear during the year that the high inflation was of a more persistent nature. Against this backdrop, central banks implemented a significant tightening of monetary policy. The combination of interest rate rises and the prospect of a slowdown in growth led to negative returns in the equity and bond markets.

There were positive returns in the fourth quarter of 2022, a trend that has continued into 2023. However, we believe there is considerable uncertainty surrounding market developments in 2023.

The Cost-of-Living Allowance Fund

Losses on shares and bonds reduced the savings in the main LD Discretionary fund, which comprises approximately 90 per cent of the accrued cost-of-living allowance funds, and for members with individual investment choices. Within LD Discretionary, the credit portfolio performed best, with a return of -4.6%. High-grade bonds yielded a return of -9.5%. The loss was limited by the fact that part of the portfolio is invested in inflation-indexed bonds. The return on the equity portfolio was -12.3%. Members were credited with a total return of -8.2%, which largely offsets the positive return of 8.3% in 2021. The investment performance was satisfactory, given developments in the financial markets in 2022.

The Holiday Allowance Fund

Members with accrued holiday allowance funds were credited with a return of -7.9% in 2022 as a result of losses on both shares and bonds. The indexation of holiday allowance funds held by employers made a positive contribution of 2.2% to the overall return on members’ assets. The credit portfolio performed best, with a return of -7.1%. The weighting of the loan portfolio within the overall portfolio increased during the year, and the portfolio became gradually more diversified. High-grade bonds yielded a return of -13.1%, primarily as a result of significant losses on Danish mortgage bonds. Equities yielded a return of -12.3%. The investment result was satisfactory, given developments in the financial markets in 2022.

Low costs are a benefit for members

It is very inexpensive for LD Pensions members to have their savings managed. The frozen holiday allowance funds are managed at a low cost compared with other similar savings options. In 2022, in LD Pensions we charged just 0.04% to administer the holiday allowance funds, and investment costs amounted to only 0.46%.

The same applies to the accrued cost-of-living allowance funds. In 2022, administration costs amounted to 0.07% of members’ assets, whilst investment costs amounted to 0.44%. An individual’s costs depend on whether they have opted for pooled investment. Costs are low in both the main ‘LD Discretionary’ pool and the equity and bond pools when compared with the investment funds offered through banks.

Key figures from the 2022 Annual Report

LD Pensions

• Total members’ assets of DKK 45.9 billion.
• Profit after expenses and pension return tax of DKK -3.5 billion, comprising DKK -1.1 billion in the Employees' Holiday Allowance Fund and DKK -2.3 billion in the Cost-of-Living Allowance Fund.
• Return on investment of DKK -4.4 billion, comprising an investment loss of DKK 1.7 billion in the Employees' Holiday Allowance Fund and a loss of DKK 2.7 billion in the Cost-of-Living Allowance Fund.

The Holiday Allowance Fund

• Member assets of DKK 20.1 billion belonging to 674,000 members.
• Attributable return after costs and pension return tax of -7.9%.
• At the end of 2022, 32% of members’ assets were held by employers. The remaining 68% were invested.
• Administrative and investment costs amounted to 0.50% of the assets.

The Cost-of-Living Allowance Fund

• Member assets of DKK 25.8 billion belonging to 435,000 members. Approximately 90 per cent of the assets are held in LD Discretionary. 10 per cent are invested in other portfolios in accordance with members’ individual investment choices.
• An imputed return of -8.2% in LD Discretionary.
• Management and investment costs amounted to 0.51% of the assets.