An end to the Discount Rate Debate. For now…..
On 21st March 2022, the Department of Justice (NI) announced that the new Personal Injury Discount Rate (‘PIDR’) for claims involving damages for future loss (including future earnings or anticipated costs of care) in Northern Ireland has been determined at -1.5%.
This new rate replaces the ‘interim rate’ of -1.75%, which had been the applicable rate since 31st May 2021, and is the result of the first review conducted using the methodology provided for under the legislative framework established by the Damages (Return on Investment) Act (NI) 2022. The new adjusted rate of -1.5% came into effect on 22nd March 2022.
What is the PIDR?
The PIDR is a percentage rate used to adjust lump sum compensation awards for future financial losses awarded to individuals who have suffered serious personal injuries. In essence, the rate is applied to adjust the damages award made to ensure that the individual is neither over nor under compensated and takes in to account the amount the individual can expect to earn by investing their award (the assumed investment return).
There had been some debate hypothesising on the possible level of the new rate, and certainly from an insurer’s and indemnifier’s perspective, this relatively slight change in the previous interim rate will be viewed with some surprise. There had been an expectation that the Government Actuary would set the new rate in Northern Ireland at -0.75%, bringing it more in line with the rates in England & Wales and Scotland, which currently sit at -0.25% and -0.75% respectively. The new rate of -1.5% means that the PIDR in Northern Ireland remains the lowest in the UK and Ireland. It is important to note, however, that the hypothetical rate under the previous methodology would have been calculated at -2.5%. It is thought that the new rate set at -1.5% comes as a result of the gloomy economic outlook, with predicted high inflationary rates, low interest rates and global political uncertainty.
For illustrative purposes only, we have set out below a worked example showing the financial implications of the new rate in Northern Ireland set at -1.5% compared to the current rate in England & Wales of -0.25%:
The PIDR in Northern Ireland will be reviewed again in July 2024 to coincide with reviews of the rates in England & Wales and Scotland.
If you would like any further information on the issues raised in this article, please contact Laura McKee or a member of our Healthcare team.