A closer look at the new Personal Injury Discount Rate for England & Wales

The legal community had, during 2024, been closely monitoring the developments surrounding the Personal Injury Discount Rate (PIDR) in the UK.

The Lord Chancellor's announcement on 2nd December 2024 set a new PIDR for England & Wales at positive 0.5%, effective from 11th January 2025. This decision, under the terms of the Civil Liability Act 2018, marks a significant departure from the previous rate of minus 0.25%, set in 2019, and means that the PIDR here will be identical to the rates set in Scotland and Northern Ireland at the end of September. 

Background

The PIDR is a critical component in calculating lump-sum awards in serious personal injury claims, ensuring that claimants are neither over, nor under-compensated for their future losses. The change in the rate from 11th January reflects improvements in the expected rate of return on investment of the awarded damages, influencing the size of the lump sum and therefore the financial liability of insurers and other compensators. 

During the last 24 months, the Ministry of Justice conducted a comprehensive review process, including two separate calls for evidence. These sought insights into the potential for single, dual, or multiple rates and gathered data on claimants' investment behaviours, the advice they receive, the returns generated, as well as associated tax levels and investment charges. The review culminated in a detailed report to the Lord Chancellor from an expert panel chaired by the Government Actuary, which included professionals from the financial services and investment advice sectors. 

The Lord Chancellor adopted a cautious approach, following advice from the panel, and aimed to strike a balance between the risks of over and under-compensation. The increase to the new, positive rate was attributed mainly to improved investment returns, although the new rate also takes account of higher charges and taxes (when compared to 2019). The panel’s advice about the new PIDR considered three core claimant groups based on the duration of future losss – 20, 40, and 60 years – rather than the previous 43-year average loss period used in 2019. 

Implications

The rate change has many important implications, the principal one being that the increase in the PIDR will result in a reduction in multipliers used to calculate the present value of future losses. The level of reduction is more pronounced for younger claimants, given the longer period over which their losses would be realised and their damages would be invested. For instance, the lifetime multiplier for a male aged 50 will decrease from 36.2 at –0.25% to 31.47 at +0.5%. For a female aged 16, the change is from 80.9 to 61.3. These examples illustrate the impact of the rate change on awards and the greater effect over a longer period. 

A key point is that although lump sum awards calculated using the new PIDR will be lower than previously, the higher investment return embedded within the new PIDR should still enable claimants to meet their future needs in full as they arise, the difference being that a slightly higher proportion of annual needs will now come from investment return than under the approach taken in 2019.  [It is also worth noting that the new PIDR makes a more generous allowance for the cost of investment advice when compared to that adopted in 2019.] 

The uniformity of the PIDR across the three UK jurisdictions for the first time in eight years is another significant development. This consistency offers potential efficiencies for compensators operating throughout the UK, simplifying the process and providing a high degree of predictability across the jurisdictions. 

Summary

The new PIDR for England & Wales represents a careful balancing act between the risks of over and under-compensation. The Lord Chancellor's decision, underpinned by expert analysis, aims to ensure that claimants receive fair and sufficient compensation without undue burden on insurers. The decision to maintain a single PIDR is a pragmatic one that avoids levels of complexity inherent in dual or multiple rate models. 

As claimants, compensators and lawyers adapt to this change, the focus will be on the behaviours of these key stakeholders and on how the new rate influences the landscape for compensating serious personal injury claims involving significant future losses. With the rate taking effect on 11th January 2025, practitioners must now turn their attention to the practicalities of implementing the new PIDR in valuations and claim handling strategies.