Denmark’s LD Pensions said employers are currently unlikely to have any interest paying frozen staff holiday allowances ahead of time into the new Danish holiday pay fund it has been tasked with managing, given the liquidity pressures of the COVID-19 crisis.
The pension fund manager also explained why recent suggestions that the frozen allowances could be released in order to help mitigate the economic fallout of the virus outbreak would not work – because most of the money in question was held by companies and not the fund.
One of the ideas being floated was that workers could take time off, financed by the resources that were frozen in the new fund, Lønmodtagernes Feriemidler, it said.
LD Pensions said in a statement: “Only DKK2.9bn (€38.8m) out of the estimated holiday wealth of DKK100bn is invested in the fund.
“In practice, this means that if one chooses to pay out employees’ frozen holiday funds which have been saved up to now, in many cases this would contribute to further burdening of the companies’ liquidity situations,” it added.
LD Pensions said employers were only required to release holiday allowances for employees who had left the labour market, with the first deadline for paying this money into the fund set at 1 September this year. Companies were allowed to hold onto the vacation entitlements of young workers for many years, it said.
“Employers are allowed to pay in the holiday allowances ahead of time, but in the current crisis that is not expected to be of interest to employers,” the firm said.
“One of the aims of the new fund is precisely that employers should be able to keep the funds for several years, thereby levelling out any liquidity pressure on the transition to the new holiday law,” it said.
The Copenhagen-based firm is in the process of putting out a series of tenders for investment mandates to manage the money that may come into the new fund, but has consistently said it is hard to predict how much the overall investment needs will be.
It has just launched a new tender for a global developed markets high conviction equities mandate.
LD Pensions was originally created to manage the now-mature Lønmodtagernes Dyrtidsfond back in 1980, which was based on cost-of-living allowances granted to a cohort of workers.
But it was given a new lease of life in 2017 when it was chosen to manage Lønmodtagernes Feriemidler.
That fund was first conceived when Danish rules on delayed holiday rights had to be changed as they were deemed to be against EU law, which stated all employees – including new ones – must have the right to four weeks’ paid holiday a year.
This change in Danish law resulted in employees being entitled to extra holiday allowances, which the government decided would be paid out to individuals only when they retired.