Finality at last? Update on changes to the Northern Ireland personal injury discount rate

Article correct as at 4th February

Background

Back in February 2020, the Northern Ireland Department of Justice (“DOJ”) notified their intention to propose amendments to the personal injury discount rate (“PIDR”) in Northern Ireland, from the 2.5% positive rate in place (at that time) to -1.75%, in accordance with the legal principles established in the case of Wells -v- Wells [1998] [1].

The PIDR is a percentage rate used to adjust the lump sum compensation awards for future losses, costs and expenses received by victims of life-changing injuries. The rate takes into account the amount a Plaintiff can expect to earn by investing their awards and seeks to ensure that individuals receive full compensation for losses suffered as a result of personal injuries that are not their fault.

A PIDR applied to a compensation award for future loss (such as loss of future earnings or anticipated care costs), should ensure that the Plaintiff / Claimant receives the full compensation that they were awarded, by taking into account what they are likely to earn on that compensation before they are expected to have spent it.

By comparison, the current discount rate in England & Wales is -0.25% and in Scotland, -0.75%

Public Consultation

A public consultation closed on 14th August 2020 with three options for a new legal framework for setting the personal injury discount rate being considered. Despite the majority of respondents preferring the adoption of a model similar to that used in England & Wales, the Justice Minister and the DOJ proposed that the Scottish model should be implemented (utilising a discount rate of -0.75%)[2]. The argument presented was that once the parameters and framework for the determination of the rate are prescribed in legislation, setting it is essentially an actuarial exercise carried out by the Government Actuary.

The Damages (Return on Investment) Bill (“the Bill”) was subsequently introduced in the Northern Ireland Assembly on the 1st March 2021 (Bill 16/17-22)[3].

‘Interim’ rate

Due to the extension of consideration time sought by the Northern Ireland Justice Committee, the DOJ introduced secondary legislation before the Northern Ireland Assembly on the 31st May 2021, which amended the PIDR from 2.5% to -1.75%

The Damages (Return on Investment) Bill

The Bill prescribes a new statutory methodology to be applied by the Government Actuary to calculate the PIDR. The methodology has been based on the Scottish framework, with a slight deviation in relation to the length of the assumed investment period. The Scottish framework utilises a period of 30 years, whereas the DOJ has acknowledged that an assumed investment period of 30 years may not correlate with the average or typical investment period for a lump-sum damages award. The assumed investment period used by the Lord Chancellor in setting the discount rate in England and Wales in 2019 was 43 years and after consideration, this was felt to be a more appropriate time period.

The Bill also provides for regular reviews of the PIDR. The first review, will be a review of the present rate which currently stands at -1.75% as a result of the May 2021 secondary legislation. The next review is expected to be in July 2024, to align with the cycle of PIDR reviews in Scotland. Thereafter, a review of the rate is to take place every five years.

Future timetable and political uncertainty

The Bill was given Royal Assent and enacted on the 2nd February 2022, with the intention of sections 1 and 2 of, and the Schedule to, the Act commencing on the 10th February 2022. On the commencement of those provisions, the Government Actuary has 90 days within which to review the rate using the methodology prescribed in the Act.

While the Northern Ireland rate has yet to be confirmed by the Government Actuary, the methodology is based on the Scottish model. A rate of -0.75% has been set in Scotland and it is anticipated that the new Northern Ireland rate may be fixed at a similar level.

Following Royal Assent of the Bill on the 2nd February 2022, political uncertainly arose following the resignation of the First Minister on the 3rd February 2022. At the time of writing, the Northern Ireland Executive are unable to meet, but the Assembly can continue to sit and legislation[4] is due before Westminster to (retrospectively) allow the Assembly to sit for a further six week period.

In the absence of an early election being called, it is hoped that this six-week period will allow the Government Actuary to produce an updated PIDR, which can be brought before the Assembly for introduction. We continue to closely watch developments with interest.

If you would like further information on the issues discussed in this article, please contact Cathal O'Neill or another member of the Defence Insurance Litigation team.

[1] https://www.bailii.org/uk/cases/UKHL/1998/27.html

[2] https://www.justice-ni.gov.uk/sites/default/files/publications/justice/summary-response-personal-injury-discount-rate.pdf

[3] http://www.niassembly.gov.uk/globalassets/documents/legislation/bills/executive-bills/session-2017-2022/damages-bill/damages-bill---as-introduced---full-print-version.pdf

[4] Northern Ireland (Ministers, Elections and Petitions of Concern) Bill - Parliamentary Bills - UK Parliament