The Personal Injury Discount Rate, or PIDR, is a crucial factor in calculating the compensation due to someone who has sustained severe personal injuries in a no-fault accident and is expected to incur lifelong expenses and losses. It aims to ensure the Claimant receives no more and no less than they are entitled to, taking into account the economic conditions prevailing at the time.
At Frenkels Forensics, personal injury work is at the heart of what we do. Our decades of experience in the field have made us the go-to forensic accountancy practice for Claimant and Defendant practitioners and barristers throughout the UK.
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What Is The Purpose Of The Personal Injury Discount Rate?
The purpose of the PIDR is to ensure that the Claimant is not over or under compensated by adjusting their compensation award to account for external economic conditions.
In some cases, a personal injury is so severe that its effects are life-changing, and the Claimant may be unable to work again and require expensive ongoing care. Accordingly, where the compensation payment is made by way of a lump sum, it must account for the Claimant’s future needs, which can run into many thousands or even millions of pounds.
The Courts recognise that receiving compensation as a one-off payment allows the Claimant to invest the money and increase its value. To give effect to the key personal injury principle that a Claimant should not receive more than they need to return them to their pre-accident position, the Courts apply the PIDR to an award for future expenses and losses.
Usually, the PIDR reduces the compensation awarded for future expenses and losses to account for the investment returns it is assumed a Claimant will receive by investing their lump sum in a diversified low-risk investment portfolio. These theoretical returns are adjusted to account for inflation, expenses, and taxation.
Who Decides The Personal Injury Discount Rate?
The Lord Chancellor sets the PIDR with advice from the Treasury and an expert panel. The panel is made up of the following professionals:
- Someone who has worked as an actuary.
- Someone who has managed investments.
- Someone who has worked as an economist.
- Someone with experience in consumer matters relating to investments.
The purpose of the advice provided by the panel and Treasury is to illustrate how invested compensation will likely perform in the current economic climate. In light of changing economic conditions, the PIDR must be regularly reviewed to ensure it remains fair to both Claimants and Defendants. Accordingly, the Lord Chancellor is obliged to review the PIDR at least every five years.
What Is The Current Personal Injury Discount Rate?
From 2001 to 2017, the rate was set at plus 2.5%. However, a difficult economic climate and failing investment returns sparked concerns that Claimants were being under compensated. So, in 2017, the rate was reduced to minus 0.75 and, in 2019, was adjusted once again, following a government review, to minus 0.25%.
In practice, the lower the PIDR, the more compensation a Claimant will receive. Accordingly, since 2017, the PIDR has not reduced damages awards, but topped them up to counteract the effects of inflation.
When Is The Personal Injury Discount Rate Due To Be Reviewed Next?
In July 2024, the Lord Chancellor, Shabana Mahmood, announced that she was opening a review of the PIDR.
The Treasury and expert panel had 90 days within which to consider the matter and provide her with their advice. That period expired on 13 October. The Lord Chancellor is currently considering the matter and expects to determine the new rate on or before 11 January 2025.
What Is The Likely Outcome Of The Current Personal Injury Discount Rate Review?
Despite the ongoing inflationary pressures and increasing care costs, the general consensus is that the outcome of the current PIDR review will likely be an increase in the rate to reflect the fact that returns on investments have been growing since 2019. The PIDRs in Scotland and Northern Ireland were recently increased to plus 0.5%, and the Lord Chancellor is expected to follow suit and increase England’s PIDR to a positive figure.
What Are The Effects Of An Increased Personal Injury Discount Rate?
An increased Personal Injury Discount Rate will have a profound impact on the compensation received by seriously injured personal injury Claimants, with younger Claimants with normal life expectancies being the most affected. With awards for future care costs and losses regularly running into seven-figure sums, even a minor adjustment can mean a difference of large sums of money.
How Can We Help You Prepare For A New Personal Injury Discount Rate?
The imminent potential adjustment to the PIDR may necessitate an urgent change in litigation strategy. For example, the probable reduction in the overall compensation a Claimant can expect in cases listed for trial from January 2025 onwards may make a previously unattractive Part 36 Offer appear quite generous.
To help solicitors and legal practitioners assess the impact of the possible change and advise their clients effectively, we are able to prepare damages calculations in a variety of scenarios for them to compare against the offer and the costs consequences of accepting it if the Claimant would be doing so out of time.
Even in cases with no outstanding part 36 offers, the possible change will require the Claimant’s legal team to revisit their damages calculations based on different discount rates. In new cases, it will be necessary to prepare a few different calculations to advise clients on the range of potential outcomes in their case.
With our extensive experience, we are perfectly placed to prepare calculations based on different assumptions and variables to demonstrate their impact on our assessment of future losses and expenses. We use our own industry-leading software to accurately produce and compare personal injury damages calculations in countless scenarios in seconds, so we can provide our findings as quickly as you need us to.
For further details on how our forensic accountants can assist with your personal injury matter, please click here.
To discover more, please call us on 0330 118 8200 or Make An Online Enquiry.
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