Further Changes to the Northern Ireland Personal Injury Discount Rate
On 24th September 2024, the Government Actuary, following a consultation which commenced on the 1st July 2024, completed a review and determination of the Personal Injury Discount Rate (PIDR) applying to Northern Ireland and Scotland.
The rates in both jurisdictions are set to change to +0.50% and the rate in Northern Ireland will come into effect from 27th September 2024.
Background
The Personal Injury Discount Rate (PIDR) is a rate used to calculate the lump sum compensation awarded to individuals who suffer serious and long-term personal injuries. This rate is applied to the future losses and costs that an injured person is expected to incur, such as medical expenses, loss of earnings, and care costs.
It is a well-established principle that individuals should receive full compensation for losses suffered as a result of personal injuries that are not their fault. 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.
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.
The purpose of the PIDR is to ensure that the lump sum payment is fair and adequate, taking into account the assumed investment return on the lump sum award, investment expenses, tax, and damages inflation
Legislative changes
On 17th June 2024, the NI Assembly passed regulations in relation to the calculation of elements of the PIDR. The Northern Ireland and Scottish rates were set to be harmonised, following a review of the current economic climate by the Government Actuary.
Prior to September 2024, the PIDR was set in Northern Ireland at -1.5%, with the equivalent rate in Scotland at -0.75%. The discount rate in England is -0.25% but adopts a different methodology for calculation and is currently undergoing a separate review process.
The -1.5% rate in Northern Ireland was one of the lowest in the world and had been set on 22nd March 2022, following the implementation of the Damages (Return on Investment) Act (Northern Ireland) 2022[1].
Rate review
The 2022 legislation sets out that the rate must be reviewed on or before 1st July 2024 by the ‘rate-assessor.’ This has now been carried out by the Government Actuary, with the rates in Scotland adjusted from -0.75% to +0.50%. Significantly, the (now aligned) rate in Northern Ireland has been adjusted from -1.5% and is also set at +0.50%[2].
The adjustment to the rate reflects a change in the economic conditions since 2022 and has been calculated, taking into account the damages inflation assumption, allowance for tax and investment expenses, the investment period and what is know as a ‘notional investment portfolio.’ The greatest impact on the change in PIDR has been the increased investment return expectations between the last review in 2022 and this review, adding around 2.7% to the rate.
A more detailed explanation of the calculation of the September 2024 rate can be found within the Government Actuary publication, setting out the methodology and economic and financial assumptions[3].
Impact and future changes
By its nature, the rate seeks to ensure that an individual is not under, (or over) compensated and that in receiving a lump sum award for anticipated future costs, the principle of 100% fair compensation is implemented.
There is a number of assumptions considered by the Government Actuary when calculating a personal injury discount rate, including the composition of the notional portfolio, the investment horizon, inflation assumptions, impact of taxation, costs of investment advice and the ‘further margin.’
In setting the new rate at +0.50%, the Government Actuary has acknowledged that the assumptions may need to be reconsidered at a future review of the PIDR and as prescribed by the 2022 legislation, the rates in Northern Ireland and Scotland are to be regularly reviewed by the Government Actuary as the ‘rate-assessor’. The next planned review rate is due to commence in July 2029.
For now, the revised rate to +0.50%, will temper the risk of overcompensation for claims involving significant future loss components.
If you have any queries in relation to this, please do not hesitate to contact Cathal O’Neill or another member of the Defence Insurance Litigation team at Carson McDowell LLP.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.
[1] Damages (Return on Investment) Act (Northern Ireland) 2022 (legislation.gov.uk)
[2] Personal Injury Discount Rates in Scotland & Northern Ireland - GOV.UK (www.gov.uk)
[3] Review of the Personal Injury Discount Rate in Northern Ireland - GOV.UK (www.gov.uk)
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