Of interest to those involved in dealing with Personal Injury claims
There has just opened a Ministry of Justice consultation on the Personal Injury Discount Rate (PIDR), applicable to future losses/costs. At issue is whether there should be Dual-PIDRs, with different rates applied to different elements of future losses/costs.
Full details of the consultation can be found here.
Many will be familiar with the PIDRs over the past 20 years of: 2001 – +2.5%, 2017 -0.75% and 2019 -0.25%. From 1996 to 2018 (prior to the Civil Liability Act 2018 (CLA) and after the Damages Act 1996) a single PIDR was set under principles established in case law (Wells v Wells 1999 1AC 345) which followed a ‘very low risk’approach: assumed the Claimant was dependant on the lump sum for long periods of time and would invest their lump sum in Index-Linked Gilts (ILGs) – so low risk, low return, Government backed investment. That philosophy was changed by the CLA, with a switch to assumed investment in (just) ‘low risk’ (rather than very low risk) investment; a mixed portfolio and allowing for investment management, inflation and tax.
It would be nearly impossible to miss the changed economy we now face, with raging inflation and interest rates increases. This has heralded a very different ‘financial world’ and for many very uncertain times. Just consider the energy, food & care bills facing someone who settled a case when inflation was low – and roll those costs increases forward over several years. How will their investment strategy hold up? Do they even have sensible budgeting and investment plans?
What about dual or blended rates?
The idea behind Dual, Multiple or Blended PIDRs is that there is merit in looking closer as the individual circumstances facing Claimants. Issues like short term awards, where there may be a risk of outliving mortality expectations, only to then face an impecunious few years of ‘extra time’ – because the ‘money pot’ has run out. The issue here being that generally investment risk tends to be higher over shorter periods. Or where different rates of inflation apply to different heads of loss – care cost inflation vs lost future earnings.
I always find it interesting how different countries and cultures approach injury compensation. I always find it interesting how different countries and cultures approach injury compensation. I note that multi-PIDRs are already in use elsewhere – close to home, Jersey has two PIDRs based on length of future loss claims; Ireland differentiates between future care costs and other (non-care cost) future losses; Hong Kong applies different PIDRs for 5-years, 10-years and >10-years (reflecting that investment risks change over time).
I guess whatever happens from this PIDR consultation will be a compromise between those with major interests in the outcome. Of course, there will be reluctance (at any cost?) to allowing each Claimant to argue why their own personal PIDR/s should apply – as this would open the door to a whole new area of claim, evidence and disputes.
Let’s look at an example
Just to give a flavour of the financial impact of a change to Dual-PIDRs of, say, +1% for care costs and +1.5% for lost earnings, then here is an example for a Male aged 40 with earnings losses and care costs of £20,000 p/a, an overall reduction of £355,800 from a PIDR of -0.25%:
I’m a great believer in Que Sera, Sera; focus on the things that you can change or influence. In which case, of course be aware that the PIDR may change over the life of claim but place the focus on formulating an informed and sensible loss quantum.
At Formby Forensics, we’re passionate about helping our clients and we’d love to chat with you about the best approach to take. Don’t hesitate to reach out – we’re always happy to help!
Richard Formby FCA MAE
