Proposed Changes to the Northern Ireland Personal Injury Discount Rate
Background
On the 27th February 2020, the Northern Ireland Department of Justice (“DOJ”) notified stakeholders of their intention to commence a statutory consultation around the proposal for a change to the personal injury discount rate (“PIDR”) in Northern Ireland, from the current rate of 2.5% to -1.75%. This change was proposed in accordance with the legal principles established in the case of Wells -v- Wells [1998] [1].
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.
Public Consultation
A public consultation was opened on the 17th June 2020, inviting views on the most appropriate legal framework for setting the PIDR. The public consultation closed on the 14th August 2020 with three options for a new legal framework for setting the personal injury discount rate being considered: (i) the model adopted in England and Wales; (ii) the model adopted in Scotland; or (iii) a bespoke model for Northern Ireland.
Despite the majority of respondents preferring the model adopted by England and Wales, the Justice Minister and the DOJ recommended 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. It is proposed that this exercise is 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] and entered Second Stage before the Northern Ireland Assembly on the 9th March 2021.
The Damages (Return on Investment) Bill
As expected, 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 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. During the Second Stage debate before the Assembly, the Justice Minister noted that 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, which will begin as soon as the legislation is commenced, will be a review of the present rate which currently stands at 2.5%. The next review would 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. The aim of regular reviews of the PIDR, at least every five years, is to ensure that the rate is aligned with changing financial conditions. The Minister also commented during the Second Stage debate in the Assembly that the updated review schedule will bring this jurisdiction in line with the Scottish cycle of reviews and will introduce efficiencies for the Government Actuary, as much of the preparatory work will be shared with Scotland.
Future Timetable
The Bill was introduced to the Assembly on the 1st March 2021, with a request from the Minister that the Justice Committee and the DOJ complete an oversight review of the Bill before the 30th April 2021. If completed, a new PIDR could potentially be in place later this year.
The Second Stage of the legislative process was approved by the Assembly on the 9th March 2021. It was agreed that the role of the Assembly was to introduce a legislative framework which facilitated the principle that individuals should receive full compensation – not over, or under compensation. The timeframe for the review and oversight of the Bill is now a matter for the Justice Committee and although the proposed legislation is short, Assembly and Justice Committee Members have highlighted the wide reaching ramifications for any change to the PIDR.
While there is consensus on the urgent need for reform to the rate, a balance must be struck between the necessary scrutiny of the legislation and a requirement for changes to the PIDR. The proposed Bill will now be examined by the Justice Committee and further developments following scrutiny of the proposed Bill, along with its implementation are expected in the coming months.
If you have any queries, please contact a member of the Defence Insurance Litigation team at Carson McDowell.
*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.
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