In 2018, LD Pensions was tasked with establishing and managing the new fund, The Holiday Allowance Fund. In January of that same year, the Danish Parliament had passed a new holiday entitlement law that affected all employees. Under the new holiday law, which came into force on 1 September 2020, employees had accrued holiday entitlement under both the old and the new rules and would therefore, in principle, be entitled to double holiday entitlement in a single year. As this was not conducive to either the labour supply or employers’ cash flow, it was decided to ‘freeze’ the holiday allowance accrued during the transitional period to the new holiday law – 1 September 2019 to 31 August 2020.
The accrued holiday allowance funds became a personal savings pot, which will later benefit the individual employee in the form of a pension lump sum when they leave the labour market.
Management of holiday allowance funds
The Holiday Allowance Fund is a separate financial entity in LD Pensions. LD Pensions has overall responsibility for the employees' holiday allowance fund, whilst ATP assists with day-to-day administration, including collecting contributions from employers and making payouts to employees.
The Holiday Allowance Fund will secure employees’ holiday allowance whilst enabling employers to retain the funds for as long as necessary – though payments must be made no later than when the individual employee leaves the labour market.
Accrued holiday allowance funds were paid out during the Covid-19 pandemic
During the coronavirus crisis, a broad majority in the Danish Parliament agreed that people could have their new holiday savings with the employees' holiday allowance fund paid out early. The aim was to stimulate the Danish economy, which had been hit hard by the coronavirus crisis. In autumn 2020, all employees with savings were therefore able to have up to three weeks’ worth of one year’s accrued holiday allowance funds paid out, and in spring 2021 it became possible to have the remaining two weeks paid out. However, it was also possible to leave the new pension savings to continue accruing. More than 600,000 employees chose to keep their new savings with the Holiday Allowance Fund.
Holiday Allowance funds are invested
The majority of frozen and accrued holiday allowance funds have been paid by employers into the Employees' Holiday Allowance Fund and are therefore invested by LD Pensions. Holiday Allowance funds that remain with the companies are adjusted annually in line with wage growth.
What an employer chooses to do has no bearing on individual employees. All employees have the same percentage of the total Return credited to their savings.Â
Holiday allowance funds must be managed in such a way as to maximise the benefit to employees. This means that the aim must be to achieve the highest possible return, whilst taking investment risks into account.
