27 February 2017 | Comment | Article by Cari Sowden-Taylor
After 16 years of waiting, the claimant solicitors amongst us were hoping and expecting an amendment to the discount rate, but even we were surprised to learn this morning that it has been reduced to -0.75%. Yes, minus 0.75!
Lord Chancellor and Secretary of State for Justice, Elizabeth Truss announced a change of the personal injury discount rate of 2.5% which was set in 2001, to - 0.75%. She states that the rate should be based on a three year average of real returns on Index Linked Gilts.
When calculating personal injury awards a discount rate is applied to lump sum payments to reflect the risks which claimants will face when they invest their compensation. Since 2001, the discount rates has been 2.5%.
The implications of the change in the discount rate are significant, both to claimants/ their lawyers, and defendants/ the insurance industry. Essentially, it means that a claimant’s compensation, where there are future losses, is likely to be much greater. The change is unprecedented; so much so, actuarial tables which lawyers use to calculate compensation for future loss do not currently exist for a discount rate of -0.75%.
For a more in depth look at discount rates and how the changes will affect the payout on a claim, read our three part series here.