New +0.5% discount rate in Northern Ireland and Scotland now in force

Alistair Kinley, Director of Policy and Government Affairs, comments on updated Personal Injury Discount Rate

On 26 September 2024, the Government Actuary's Department (GAD) published the results of its review of the Personal Injury Discount Rate (PIDR) for Scotland and Northern Ireland, announcing an increase in the rates for both jurisdictions. Effective from 27 September 2024, a new discount rate of +0.5% was set for claims in Scotland and Northern Ireland. 

The Government Actuary indicated that this increase is primarily driven by improved projected investment returns since the previous reviews, in 2019 in Scotland and in 2022 in Northern Ireland. Given the improved investment climate, claimants should not experience any detriment as a result of the change. 

Additionally, the "100% principle" remains unchanged. While the methodology for calculating the rate has been adjusted, the principle itself—that claimants should receive full compensation for their future losses, including care costs and loss of earnings—continues to underpin the PIDR. The enhanced investment conditions in 2024 mean that a greater portion of a pursuer’s or plaintiff’s annual future requirements will be derived from investment returns, but the overall objective of ensuring sufficient funds to cover projected needs over the future remains intact.  

As anticipated, a single rate has been set for both Scotland and Northern Ireland. This outcome was expected because the existing regulations did not provide for the introduction of dual rates and fresh regulations would have been required in both jurisdictions to implement dual rates. Given that 2024 regulations in both jurisdictions did not cater for dual rates, it was inevitable that a single rate would be set. It looks reasonably likely that this could also turn out to be the position in England and Wales. 

What does this mean in practice? 

In practice, the increase in the PIDR will result in lower multipliers and, consequently, reduced compensation awards. Although the discount rate has increased, it is important to re-emphasise that the principle of 100% compensation remains unchanged. 

The PIDR is designed to ensure that claimants receive adequate compensation to meet their future losses and needs over the duration for which they arise, without leading to either over-compensation or under-compensation. Therefore, despite the lower awards, the observed higher investment returns which underpin the new PIDR should mean that plaintiffs’ and pursuers’ future needs should continue to be met as effectively as they were under the previous rate. 

The PIDR recognises that there is a cost to matching its assumed investment return, such that allowance for investment advice and taxation – an intrinsic part of the PIDR - has now been increased to 1.25% pa.  

What is the impact on England & Wales? 

As the legislation governing the PIDR is entirely separate for England & Wales, strictly speaking, there is no impact from the recent change in Scotland and Northern Ireland.  

In 2019, the PIDR for England and Wales was 0.5% higher than that for Scotland, largely due to the Government Actuary’s recommendation for a slightly more growth-oriented investment portfolio in England and Wales, compared to the more conservative approach taken in Scotland and Northern Ireland where the legislation prescribes what the investment portfolio should look like. 

Should this same differential apply in the 2024 review in England & Wales, a rate similar to that now adopted in Scotland and Northern Ireland might be put in place, or even possibly a slightly more positive rate. However, the rate-setting process as a whole is a matter for the Lord Chancellor’s discretion and therefore it is difficult to predict what her eventual decision might be. 

The Lord Chancellor is required to announce the new PIDR for England and Wales no later than 11 January 2025 and, at the time of writing, there had been no official indication regarding the timing of the announcement. 

FAQs 

Will there be greater demand from claimants for periodical payments because of the increase in the discount rate?  

Such a development is certainly possible, although it is too soon after the rate change to see any signs to that effect. It’s something that compensators may wish to monitor in the coming weeks and months. 

What effect does the rate change have on outstanding offers? 

The rate change has no effect on the validity of any offers, although obviously the attractiveness of any offers will have changed because the new rate will (all other things being equal) lead to lower awards. The approach to reviewing or revising offers is a matter for individual compensators. That said, we understand that some outstanding offers are being withdrawn and/or re-framed to reflect the new rate. 

Do you think the Government will engage with all those affected by the Discount Rate decision?  

The new rate for Scotland and Northern Ireland brings a close to any associated debate. 

In England & Wales, however,  the entirely separate rate review has not (at the time of writing) concluded. Because of the sensitivities involved, we do not expect the Ministry of Justice to engage with stakeholders before the new PIDR for England and Wales is announced. However, at that point it is required to provide reasons for its decision.  

What are the main differences in the process in England & Wales? 

The key difference is that Civil Liability Act 2018 provides the Lord Chancellor with a wide discretion to set the PIDR in England and Wales and sets out issues and factors that should be taken into account. 

This contrasts with the legislation in Scotland and Northern Ireland which prescribes in some detail all the elements of the calculation of the PIDR.