Personal Injury Discount Rate (PIDR) in England & Wales increased from -0.25% to +0.5%

The Lord Chancellor announced that following the review of the rate required by the Civil Liability Act 2018, she has decided to increase it to +0.5% She will make a statement to Parliament later today summarising her decision.

The decision to set the rate at +0.5% means that the rates in force across all of the UK are the same, with this rate also having been set  in Scotland and Northern Ireland in late September (as we noted at the time: New +0.5% discount rate in Northern Ireland and Scotland now in force : Clyde & Co). The last time the same rate applied throughout the UK was nearly eight years ago, in early 2017.

What is the PIDR and why has it changed?

The PIDR is an integral part of calculating compensation for future losses and needs in serious personal injury claims. Where compensation is made via a one-off lump sum, the PIDR is that part of the calculation which allows for future investment of the sums awarded.

The rate was previously set in 2019 and must be reviewed on a five-year cycle. The increase announced today is highly likely to have been driven principally by better current and likely future investment performance compared to that in 2019. In setting the rate, the Lord Chancellor has been advised by an Expert Panel chaired by the Government Actuary and by the Treasury.

What is the effect of the change?

Although the new rate of +0.5% which will take effect from 11 January 2025, will mean lower lump payments than those calculated at -0.25%, this should not be seen as creating a shortfall in damages. The better investment performance which underpins the new PIDR should mean in practice that a slightly greater proportion of future needs will now be realised by investment returns than was the case under the -0.25% rate.

For illustrative purposes only, the lump sum award for lifetime care in the case of a 35 year-old female with an annual care need of £60,000 would be £2.8m under the new +0.5% rate, which compares to £3.4m under the previous rate of -0.25%.

As a result of the change, case estimates will need to be re-evaluated, as will the efficacy and attractiveness of any offers made or received. However, a wide range of claims representatives and other stakeholders in the insurance and legal sectors have, since the decision in Scotland and Northern Ireland  in September, been anticipating an increase in the PIDR in England & Wales and are therefore likely already to have undertaken significant preparatory activity on these topics. 

The extent to which the reduction in awards because of the new PIDR might moderate inflationary pressures on insurance and reinsurance costs will be a matter for individual companies and carriers.

What happens next?

The Lord Chancellor’s Statement to Parliament will be released later today. We expect that the Ministry of Justice will then publish, as is required by the 2018 Act, a more detailed document setting out her reasoning along with the advice provided by the Expert Panel (or some form of summary of it).We shall provide further analysis of these materials as soon as we can.

The final piece of the rate review and re-setting will be a very brief statutory instrument brought to Parliament to change the law formally and which will take effect on 11 January.