The settlement follows recommendations from The Holiday Law Committee, as published in august 2017, on a new law after an EU Commission decision that the Danish holiday rules on delayed holiday rights were against EU law.
The need to freeze the funds arise when a new Holidays Act becomes effective, which is expected to take place on 1 September 2020. The new Holidays Act is based on the principle of earning and holding the holidays simultaneously. Even after one month's employment, the employee will be entitled, but is not obliged to hold 2.08 days of holidays. When the new Holidays Act becomes effective, employees will have saved holidays from the current Holidays Act. A transitional arrangement is required to prevent employees from taking double vacation by using both saved holiday rights from the current Holidays Act and the new holiday rights under the new act. On the other hand, these earned rights cannot be overridden. Therefore, the already earned holiday pay will be frozen in a fund until the employees leave the labour market. It will affect 2.6 million employees with earned rights amounting to approx. 11 billion euro.
Two legs of asset management
Presumably, the employers may owe the fund the outstanding holiday pay under the old holiday act until LD collects the money to cover payments to eligible employees when they retire from the labour market. This allows employers to delay raising their liquidity in order to pay their owed holiday pay according to the old holidays act, until the eligible employees are entitled to receive the money.
For some employers it will be attractive to owe the money for a number of years. For others it will be possible to obtain the funding on other and more favourable terms.
However, the fact that the employers can choose to either owe the holiday pay or not, implies that LD will organise the fund management based on two legs - partly owed funds from employers and partly frozen holiday funds transferred to LD.
When the fund is established, approx. 1,3 billion euro will be transferred from various holiday funds. The amount transferred by the employers is unknown and leaves LD unaware of the amount which must be invested.
"It is a challenge, but one of the good one, which we are happy to take on", says Dorrit Vanglo, CEO at LD.
She points out that only time will show the pattern in the choices the employers take regarding the loan options.
"The loans are not a bad idea. On the contrary, it can be seen as very secure investments", says Dorrit Vanglo
A good match
LD’s structure and organization is suitable for the management of the new Holiday Fund. LD's investment structure in the investment area is flexible, and the assets of the Holiday Fund can easily be integrated into LD's existing fund structure. The joint investment with the Salary Benefit Fund and the Holiday Fund will ensure low costs and access to qualified investment advisors from day one in all key areas.
