The Danish parliament decided to found the Cost-of-Living Allowance Fund at the end of the 1970s with the object of managing Denmark's “frozen cost-of-living allowances”. This concept was a way of automatically adjusting the wages to cover the increase in living costs.
These allowances were meant to be paid to the employees to offset inflation. However, the government decided to pay them as a supplementary lump sum pension upon retirement.
In 1980, the government therefore entrusted the Cost-of-Living Allowance Fund with DKK 7.7 billon deposited into 2.5 million member accounts. The Cost-of-Living Allowance Fund has not received any contributions since 1980, but since then 1.9 million members have received their savings, and the Cost-of-Living Allowance Fund has disbursed DKK 109 billion as pension lump sums to the members plus tax. At the end of 2020, the Assets of the Cost-of-Living Allowance Fund amounted to DKK 32 billion belonging to approx. 500,000 members.
The Cost-of-Living Allowance Fund pays a lump sum when the members reache their retirement age and leaves the workforce permanently (or when reaching the age of 60).
Investment Portfolios and LD Discretionary
Since 1 January 2000, the members of the Cost-of-Living Allowance Fund have been able to invest their savings in investment portfolios. It is now possible to choose between 10 different portfolios of which four are offered by the four largest mutual funds in Denmark.
Members, who do not choose to invest in portfolios, invest all their savings in the large joint portfolio LD Discretionary. This portfolio also contains any savings, which the portfolio investors have not invested in portfolios.