Personal Injury discount rate increased to +0.5%
The Personal Injury Discount Rate (‘PIDR’) for England and Wales will be increased to +0.5% with effect from 11 January 2025. The Lord Chancellor, Shabana Mahmood, made her announcement yesterday at the conclusion of a review that began in July 2024.
The PIDR is an assumed rate of return on the investment of lump sum damages, used to calculate compensation for future pecuniary losses.
This marks the return of the PIDR above 0% for the first time since 20 March 2017. It also means that the PIDR in England and Wales will match those in Scotland and Northern Ireland (both +0.5% effective from 27 September 2024).
General Impact on Claims
The increase to the PIDR will reduce the value of claims for future losses presented on a lump sum basis by decreasing multipliers for terms certain and increasing discount factors for accelerated receipt.
For illustrative purposes:
A 40-year-old male claimant claims loss of earnings of £50,000 net p.a. to age 68 and gratuitous care of £10,000 p.a. to age 80.
The change will likely have a slightly greater impact on female claimants than male claimants, since multipliers for the former are generally higher. For instance, old and new PIDR multipliers to age 75[3] are 57.40 and 46.97 for a 20-year-old female claimant, a difference of 10.43, but 56.54 and 46.34 for a 20-year-old male claimant, a difference of 10.2.
The longer the period of loss, the more the impact will be. For a female claimant aged 18, the life multiplier has dropped from 78.34 to 59.76, a decrease of 18.58. For a male claimant of the same age, the reduction is from 75.07 to 57.72, i.e. 17.35.
The newly reduced PIDR will have a significant impact on loss of pension multipliers. A male claimant aged 45, claiming a loss of pension from age 65[4], will see his multiplier reduced from 22.01 to 17.21, a drop of 4.8. This is much greater than the decrease in basic loss of earnings multiplier for the same male claimant from age 45 to age 65 (19.84 to 18.43, a drop of only 1.41). Particular care must therefore be taken in the analysis of loss of pension claims brought by relatively young claimants.
In very high value cases, the new PIDR could make a difference of millions of pounds.
For example:
A 30-year-old female with annual care, case management and therapy needs of £100,000 but with a normal life expectancy. On a lump-sum basis:
Such cases might be unusual (since a claimant in this category might more commonly opt for these heads of loss to be met by a PPO) but could arise where, for instance, a liability split has been agreed or ordered such that a PPO will not enable annual costs to be met.
Reserves, Settlements, Pleadings and Offers
The announcement may prompt insurers to revise reserves downwards on some cases although, on anecdotal evidence, many insurers and defendant lawyers have been working on an assumption that the discount rate would rise to somewhere between +0.5% and +1.0% so it may not be every case that requires revisiting.
Given that it was known that the new PIDR would be announced in December 2024, and that there was a working assumption in many quarters that it would rise above 0%, many settlements might have been negotiated on the basis of an assumed PIDR less generous for claimants, say +0.75%. However, the Lord Chancellor’s decision is unlikely to provide a justification for revisiting those settlements.
Claimants and defendants will have to re-pleaded Schedules and Counter-Schedules for cases approaching trial to incorporate the new +0.5% PIDR.
The validity of offers already made should generally not be affected by the rise in the PIDR. We may therefore see claimants rushing to accept historic offers and defendants equally hurrying to withdraw them.
Claimants in high-value cases might be well advised to opt for smaller lump sums and receive more heads of loss by way of PPOs.
Part 36 Offers
Where a Part 36 offer has not been accepted and the relevant period for acceptance has expired, that offer can be withdrawn by a defendant in accordance with CPR 36.9.
However, one interesting point could arise from attempts by a defendant to withdraw or reduce Part 36 offers within the relevant period for acceptance if the claimant then serves a notice of acceptance of the original offer inside the relevant period. The defendant will then have to apply to the court for permission to withdraw/reduce the original offer (CPR 36.10(2)) and must satisfy the court that “there has been a change of circumstances since the making of the original offer and… it is in the interests of justice to give permission” (CPR 36.10(3)). This is likely to be a high hurdle to surmount given that it has long been known when the PIDR would be reviewed.
The PIDR change could also give rise to instances of claimants failing at trial to beat defendant Part 36 offers made on the basis of the -0.25% rate and it will be interesting to see what approach the Courts take to Part 36 consequences in these circumstances. In Marsh v. Ministry of Justice [2017] EWHC 3185 (QB) the claimant, M, succeeded at trial in July 2017 in his claim for damages for psychiatric injury against his employer, the MOJ. The PIDR had changed from +2.5% to -0.75% in March 2017 such that M was awarded c. £286,500 at trial when, under the previous PIDR, he would have received c. £217,500. Several years before trial, M had made a Part 36 offer of £223,500. Thirlwall LJ held that it would be unjust for this early Part 36 offer to attract the usual Part 36 consequences by analogy with Novus Aviation Ltd v. Alubaf Arab International Bank BSC [2016] EWHC 1937 (Comm), a case in which a dramatic fall in sterling after the Brexit referendum mean that a historic Part 36 offer was beaten. Thirlwall LJ stated shortly that “a change in the discount rate is somewhat different in kind” from the normal vicissitudes of litigation. Marsh was to be heard by the Court of Appeal but the appeal was compromised. Given the clear framework around reviewing the PIDR and the long history of this particular review, her ladyship’s conclusion must be open to question at least for future cases.
A further point arises from Marsh. The evidence and submissions were heard in November and December 2016 (before the PIDR changed) but judgment was not given until July 2017 (months after the change). Thirlwall LJ trenchantly rejected an attempt by the MOJ to argue that the PIDR in force at the time of evidence and submissions should be applied, rather than the PIDR in force at the time of judgment, by reference to s.1(2) of the Damages Act 1996 (now s.A1(2)). This argument might be revisited in future cases where the trial has been heard, or is to be heard in the next few weeks, but where judgment is given on or after 11 January 2025. Claimants would now argue that it is “more appropriate” to use the old PIDR. On the basis of Marsh, such an argument will probably fail, at least at first instance.
Additional Points
As noted above, the PIDR is now the same for England and Wales, Scotland and Northern Ireland. However, it is not the same in other Crown Dependencies. For instance, in the Isle of Man it is +1%, more generous for defendants. In Guernsey, following a consultation, an expert panel is to be set up to make recommendations. In Jersey, the rate is +0.5% for future losses expected to last less than 20 years and +1.8% for future losses expected to be incurred for a longer period. The Lord Chancellor gave a clear rejection of a dual/multiple discount rate for England and Wales, based on the advice of the Expert Panel and HM Treasury.
For reference, the PIDR in England and Wales was originally set at +2.5% in 2001. It was dramatically decreased to -0.75% from 20 March 2017. It rose to -0.25% from 5 August 2019 and has now been increased again to +0.5% with effect from 11 January 2025.
Procedural Background and Lord Chancellor’s Approach
The Lord Chancellor is required to review the PIDR every five years by dint of s.A1 of the Damages Act 1996. This review has included two Calls for Evidence, consultations with statutory consultees and input from HM treasury. However, it was the first in which an independent Expert Panel was established and consulted by the Lord Chancellor. That Panel, which was chaired by the Government Actuary and included experts in actuarial matters, investment management, economics and consumer matters relating to investment, produced a lengthy report to the Lord Chancellor, conducting detailed analysis of a range of potential PIDRs from +0.5% to +1.5%.
The Lord Chancellor then made her decision, unsurprisingly drawing heavily on the Panel’s conclusions. In summary, she:
- Emphasised her duty to set the PIDR at a level that most reasonably reflected the rate of return that claimants could be expected to receive from their investment of lump sum damages, bearing in mind the ‘full compensation’ principle while recognising that it was “inevitable that some degree of over- or under-compensation of claimants will occur in individual cases”.
- Endorsed the Panel’s approach to base its advice not on a single ‘representative claimant’ but on several ‘core claimant types’ with investment terms of 20, 40 and 60 years and distinct investment portfolios.
- Reiterated that the assumed investment approach should not reflect a very low level of risk but “less risk than would ordinarily be accepted by a prudent and properly advised individual investor”.
- Accepted the Panel’s advice that claimants’ costs, which damages were intended to meet, should be assumed to inflate by CPI + 1% p.a., on average.
- Approved the Panel’s approach of making assumptions about tax and investment management expenses.
- Made it clear that her choice was, in reality, between +0.5% and +0.75%. Insurers might feel disappointed that she did not plump for the latter given that the Panel had advised that it would meet the majority of core principles and carried no more than a 30% likelihood of significant under-compensation for the three categories of core claimant. Ultimately, the Lord Chancellor was swayed by the evidence that a PIDR of +0.5% gave each core claimant at least a 55% chance of receiving “at least full compensation” with no more than a 25% chance of significant under-compensation, whereas +0.75% gave a core claimant investing for 20 years only a 47% chance of receiving “at least full compensation”. This risk of under-compensation for the 20-year core claimant was “too high a risk of under-compensation” for the Lord Chancellor to permit. The higher chance of over-compensation for the majority of core claimants was “an acceptable and necessary trade-off”. It can be argued that the Lord Chancellor’s approach was still claimant-friendly.
Further Reading
The Lord Chancellor’s statement of reasons for her decision, and accompanying impact assessment and equality statement, along with the Panel’s detailed report, minutes of their meetings and various other documents can be found at: Personal Injury Discount Rate – GOV.UK.
About the Author
Peter Houghton practises in serious personal injury and industrial disease cases for both claimants and defendants. His recent caseload includes amputations (and prospective amputations), traumatic brain injuries (from suspected to severe), spinal cord injuries and severe polytrauma. Many of the claim is in which he is instructed are valued in excess of £1 million.
[1] Multipliers from Ogden Table 11, before application of Table A or C reduction factors.
[2] Multipliers from Ogden Table 17.
[3] Multipliers from Ogden Tables 15 and 16.
[4] Multipliers from Ogden Table 25.
