New +0.5% personal injury discount rates announced in Northern Ireland and Scotland

The Government Actuary’s reports covering Scotland and Northern Ireland have confirmed that the personal injury discount rate (PIDR) of +0.5% will apply to both jurisdictions. The new rates are now in effect.

Here, we examine the background to the previous PIDR rates in Scotland and Northern Ireland, the consultation process, and the Government Actuary’s reports which provide a breakdown of the new rates.

What is the personal injury discount rate?

The discount rate is the figure used to help calculate lump sum compensation payments for higher value claims involving future losses.

It takes into account that a claimant will receive a lump sum for a loss intended to cover a period in the future, and is able to invest that lump sum. The lower the discount rate, the higher the compensation award.

Background – Northern Ireland

The previous rate of -1.5% was set in March 2022 in accordance with the provisions of the Damages (Return on Investment) Act (Northern Ireland) 2022 which was disappointing for insurers and other compensators who hoped for an increase of more than 0.25% on the interim rate of -1.75%. The -1.75% rate was introduced on 31 May 2021 and at the time was referred to as the lowest discount rate in the world. For context, the previous rate in Northern Ireland for 20 years was +2.5%.

Background – Scotland

The previous rate in Scotland was -0.75% and this was set in September 2019.

Consultation process

In June 2023 the devolved administrations in Scotland and Northern Ireland issued a joint request for views on whether any changes should be made to the range of factors to be taken into account when calculating the PIDR. This followed the Ministry of Justice (MoJ) in England & Wales at the beginning of the year launching a call for evidence seeking additional evidence and views on the introduction of dual or multiple rates.

In Spring 2024 the Government Actuary published its advice on the PIDR in Scotland and Northern Ireland, along with an overview of stakeholder responses, next steps and confirmation that it intends to continue with a single PIDR for both jurisdictions.

The Department of Justice state that the “main reason for this [+0.5% rate] is an increase in projected returns on the notional portfolio of investments.”

The Government Actuary’s reports provides a breakdown of the +0.5% PIDR (net of all adjustments and damages inflation), namely:

• The gross return from notional portfolio before adjudgments of CPI + 3.50% per annum over 43 years.
• The standard adjustment for the impact of tax and costs of investment advice and management of -1.25% per annum.
• The standard adjustment for further margin involved regarding the rate of return of -0.50% per annum.
• The adjustment for damages inflation equivalent to average weekly earnings – (CPI + 1.25% per annum).

Comment

Continued reflection on and consideration of the PIDR is an important part of ensuring a fair, efficient and modern civil justice system in Scotland and Northern Ireland.

This increase in the PIDR will impact the level of future losses awarded to claimants, such as future loss of earnings, cost of future treatment, care and case management.

In terms of next steps, the next planned review of the PIDR for both jurisdictions will commence in July 2029.

Related items:

• Only darkness for insurers at the end of the Northern Ireland discount rate tunnel
• Northern Ireland and Scotland launch personal injury discount rate calls for evidence
• The personal injury discount rate in Scotland: expect a single rate
• Claims Handling Law and Practice: A Practitioner's Guide

 

Read other items in Healthcare Brief - October 2024