€13bn Danish benefits fund manager issues call for more capital

The manager of a DKK100bn (€13.4bn) holiday pay fund has urged employers to pay into the fund in order to boost its earning power.

LD Pensions was given the task in 2017 of managing the new Employees’ Fund for Residual Holiday Funds, running the cash equivalent of an extra 12 months’ worth of holiday entitlements granted to Danish employees as a result of bringing local legislation into line with EU law.

LD said its new portfolio could yield 4.5% a year on average if employers opted to pay their liabilities into the fund – a third more than the 3% return the fund would gain otherwise, according to preparatory work carried out by Denmark’s employment ministry.

The provider said new fund was expected to have total assets of DKK100bn once it was operational.

LD said that the proportion of employers opting to pay into the fund could be of great importance for its investment work.

Charlotte Mark, finance director of LD Pensions, said: “It poses challenges for the fund’s strategy – we do not know in advance what the employers will do.”

She added: “The employers’ funds provide a safe return, and that is in itself good.

“But there must also be room for more risky investments to generate a good return on employees, and that requires some of the funds to be paid by employers before they fall due on the employee’s retirement.”

Mark said LD would look at different investment tools outside of its current strategy if only a small proportion of the fund’s assets could be actively managed.

“We believe in a good result, even though it turns out that many employers need liquidity,” she said.

Employers must report the cash value of holiday entitlements earned by employees in the “transition year” leading up to new holiday pay act coming into force on 1 September 2020.

It is then up to the employers whether they want to keep the money in the company until the staff members’ retirement and pay an annual indexation charge, whether they will pay all employees’ earned holiday money to LD, or whether they will choose a combination of these two options.