It is a well-established principle of law that individuals should receive full compensation for losses suffered as a result of personal injuries that are not their fault.
What is the Personal Injury Discount Rate?
When victims of life-changing injuries accept lump sum compensation payments, the final figure they are awarded is adjusted via a calculation known as the Discount Rate. This is to reflect the fact that they can expect to earn interest by investing their compensation.
The discount rate applied to the compensation for future financial loss (such as loss of future earnings and care costs) aims to ensure that people receive the full compensation that they were awarded – no more or less – by taking into account what interest they are likely to earn on that money before they are expected to have spent it.
What is the new rate?
As of today, the Discount Rate is minus 0.25%.
What was the rate before and why has it changed?
The previous rate was set at minus 0.75% in 2017 after being at a rate of 2.5% since 2001.
Insurers had urged the Government to review the minus 0.75% rate wanting the rate to be returned to somewhere closer to the earlier 2.5% rate. They believed that the minus 0.75% rate resulted in claimants being substantially over-compensated, increasing financial pressure on public services that have large personal injury liabilities, such as the NHS.
However, following an extensive review which took a wide range of views, including from personal injury lawyers, insurers, investment experts and public bodies, the rate was reduced by just 0.5%.
Whilst insurers are noted to be greatly disappointed by the new rate, the then Justice Secretary David Gauke said:
It is vital victims of life-changing injuries receive the correct compensation – I am certain this is the most balanced and fair approach following an extensive consultation.
As a claimant personal injury solicitor myself, I welcome this decision. I do not believe that injured people should be forced to take any risks with their investments.
How will this change in rate work in practice?
By way of an example, under the previous minus 0.75% rate a 30 year old male with annual financial living costs of £50,000 would be awarded £2,935,500. Under the new rate (minus 0.25%) he would be awarded £2,565,250. This is a difference of £370,250.
Will the Personal Injury Discount rate change again?
The rate will be reviewed every 5 years, with future reviews advised by an expert panel.