In another blow by the Government to victims of serious injury and fatalities, the future award for compensation will be reduced from -0.25% to 0.5%. Future awards affect those claimants where the impact of the injury will be either life long or for many years or decades into the future. The rate used by personal injury solicitors is set by the Government and determines how much a claimant can claim for compensation into the future, this is knows as the ‘Personal Injury Discount Rate’ (PIDR).
What is the PIDR?
The PIDR is a critical factor in calculating lump sum compensation for future financial losses in personal injury claims. It reflects the expected rate of return that a claimant might earn by investing their compensation, ensuring they receive appropriate funds over time without overcompensation.
Historical Context of the PIDR in England and Wales:
- 2001: The PIDR was set at +2.5%.
- March 2017: The rate was adjusted to -0.75%.
- July 2019: Following a comprehensive review, the rate changed to -0.25%.
- December 2024: The Lord Chancellor announced an increase to +0.5%, effective from 11 January 2025.
Implications of the PIDR Adjustment:
An increase in the PIDR results in a lower lump sum compensation for claimants, as it’s assumed they can achieve higher returns on their investments. This adjustment aims to balance fair compensation with the avoidance of overpayment.
Use of Multipliers in Compensation Calculation:
Multipliers, derived from the Ogden Tables, are used alongside the PIDR to determine the present value of future losses. These tables consider factors like life expectancy and the duration of future losses. The chosen PIDR directly influences the appropriate multiplier, impacting the final compensation amount.
Consideration of Dual or Multiple Rates:
The recent review explored the possibility of implementing dual or multiple rates to better reflect varying investment scenarios. However, the Lord Chancellor concluded that a single rate of +0.5% was more appropriate at this time.
Parliament Questions and Statements
Impact on Related Sectors:
The adjustment of the PIDR has broader implications, notably in the insurance industry. For instance, PricewaterhouseCoopers (PwC) predicts that the increase to +0.5% could lead to a 5% reduction in car insurance premiums for drivers in England and Wales, equating to an average saving of £50.
In summary, the PIDR serves as a vital tool in ensuring that personal injury compensation is fair and accurately reflects the financial realities faced by claimants. Regular reviews and adjustments are essential to maintain this balance.
Links to Sources
Here are the links mentioned earlier:
- Announcement of the new PIDR:
https://www.gov.uk/government/news/personal-injury-discount-rate-england-and-wales - Ogden Tables (actuarial tables for compensation calculations):
https://www.gov.uk/government/publications/ogden-tables-actuarial-compensation-tables-for-injury-and-death - Parliamentary Statement on the PIDR review:
https://questions-statements.parliament.uk/written-statements/detail/2024-12-02/hcws275 - Impact on insurance premiums:
https://www.thescottishsun.co.uk/money/13958010/car-insurance-fall-pwc-personal-injury-discount-rate
Examples:
Updated Calculation: Lump Sum of £100,000 Paid Over a 5-Year Projected Term
If the claimant is awarded a total lump sum of £100,000, which is intended to cover 5 years of losses, the calculations would determine how much less or more they would receive under the two discount rates, these calculation are very basic and our simply to illustrate that the awards in the future will be reduced.
- Discount Rate of -0.25% (old rate):
- Multiplier: 4.91
- Lump Sum Equivalent: £100,000 ÷ 4.91 = £20,366.09 per year
- Discount Rate of +0.5% (new rate):
- Multiplier: 4.88
- Lump Sum Equivalent: £100,000 ÷ 4.88 = £20,491.80 per year
Difference in Annual Payment: £20,491.80 – £20,366.09 = £125.71
Updated Scenario: Maximum Compensation of £10,000 per Year for 10 Years
If the claimant is to receive £10,000 per year for 10 years, we calculate the lump sum payment using the appropriate multipliers for each discount rate.
Step 1: Calculate Lump Sum for -0.25% (Old Rate)
Multiplier for 10 years at +0.25%: 9.57
Lump Sum = £10,000 × 9.57 = £95,700
Step 2: Calculate Lump Sum for +0.5% (New Rate)
Multiplier for 10 years at +0.5%: 9.48
Lump Sum = £10,000 × 9.48 = £94,800
Difference:
£95,700 – £94,800 = £900
Summary of Impact:
The change from a -0.25% discount rate to a +0.5% rate reduces the lump sum payment by £900 for a 10-year award at £10,000 per year.
The impact grows as the period extends, reflecting the cumulative effect of the higher assumed investment returns.
