Northern Ireland moving towards new framework for setting the personal injury discount rate
Representatives of the Department of Justice (DoJ) appeared before the Justice Committee at Stormont yesterday to provide an update on the review of the legal framework for setting the personal injury discount rate.
This followed the conclusion of the public consultation which ran between 17 June 2020 and 14 August 2020. The consultation itself was pursuant to the unexpected announcement in February this year that the Minister was considering a -1.75% discount rate change. This announcement had understandably provoked a strong reaction especially when it was stated to be pursuant to a statutory consultation. There were concerns that this rate would be imposed but after lobbying by various interest groups, a consultation process was launched as to the methodology that should be adopted.
In reviewing how the personal injury discount rate should be set in Northern Ireland, the DoJ sought views on whether the new legal framework in place in England and Wales, or that in Scotland, would be appropriate. Alternatively, it sought suggestions on an appropriate alternative.
Our Belfast office responded to the consultation, favouring the approach recently adopted in England and Wales of determining the rate by reference to expected rates of return on a low-risk diversified portfolio of investments, as being the most equitable.
Outcome of the consultation
The Justice Committee at Stormont was informed in an update by DoJ representatives, that the Minister had declared a conflict of interest and that the permanent secretary would be taking the Bill in relation to a proposed new framework forward, based on the Scottish model for calculating the discount rate. In the interim, the discount rate in Northern Ireland will remain at 2.5%.
Scotland’s method for calculating the rate shares several similarities with that of England and Wales. However, it is in the details where there are some important differences. That which has the greatest impact on the rate are the “Standard Adjustments” to be made to the return from the notional portfolio. 0.75% is to be deducted to reflect the impact of taxation, the cost of investment advice and management, and a deduction of 0.5% for a “further margin”.
The DoJ representatives expressed a preference for this to be put through an accelerated process to get the Bill tabled in early 2021 with the aim of obtaining Royal Assent in September 2021, and it is understood the Minister will seek agreement from the Executive on this.
It remains to be seen whether implementing a model based on the Scottish legal framework will result in the same discount rate currently in place in Scotland.