New Personal Injury Discount Rate for Northern Ireland
On 26 March 2021, Naomi Long, Justice Minister for Northern Ireland announced that the Personal Injury Discount Rate (PIDR) in Northern Ireland will reduce from +2.5% to -1.75% from the end of May 2021. This will have a significant impact on personal injury claims, particularly those involving catastrophic injuries. It is likely to substantially increase compensation awards, writes Eimer Magee.
New Personal Injury Discount Rate | Your Guide
When the NI Personal Injury Discount Rate reduces to -1.75%, it will become one of the lowest in the world – one of the most drastic changes to NI personal injury law in decades. Our Forensics Team has summarised everything you need to know including, most importantly, the financial impact this will have on lump sums awarded.
What is the PIDR?
It is a well-established principle that an injured individual should receive full, fair compensation for losses suffered as a result of personal injuries that were not their fault. In personal injury claims, a forensic accountant calculates the future losses arising from an accident to arrive at the appropriate level of compensation. This compensation will cover future losses incurred by the claimant such as loss of earnings and future additional costs arising from the injury such as care and adapting accommodation to meet the injured party’s needs.
The PIDR is used to adjust lump sum damage awards for future losses in personal injury and fatality claims. Its purpose is to ensure that the claimant does not end up receiving a windfall; therefore, it reduces the lump sum received based on the assumption that the injured party will invest the lump sum in a low-risk investment and will earn a return into the future.
The current PIDR in Northern Ireland is +2.5%. This rate has not changed since 2001 and is higher than the rates applied in all other UK jurisdictions. One of the issues with this is that, for many years now, the rate of return on low-risk investments has been well below +2.5%, meaning that the level of compensation received by claimants is effectively over-discounted and in some instances insufficient to meet future needs including medication, treatment, and adaptations relevant to their injury.
What is Changing?
Following calls by personal injury lawyers and claimants for a review of the Northern Ireland PIDR, public consultation commenced in mid-2020. It was the opinion of many that Northern Ireland lagged behind England, Wales and Scotland where PIDR has been in negative figures for several years. Following the consultations, Naomi Long, Justice Minister for Northern Ireland announced that the PIDR would reduce to -1.75% from 31 May 2021.
How will Northern Ireland’s new Personal Injury Discount Rate affect Claimants?
In recent years, when preparing expert forensic accountant reports for clients in Northern Ireland, FPM has presented a range of compensation levels for comparative purposes, applying the current rate of +2.5% and the negative rates applicable in England, Wales and Scotland. In practice, the compensation settlement reached usually applies a blended discount rate which takes into account the fact that Northern Ireland’s PIDR has not been adjusted since 2002 despite the considerable economic changes that have taken place since then.
The recently announced rate change from +2.5% to -1.75% represents a significant 4.25% reduction in absolute terms. It means Northern Ireland will have the lowest PIDR in the UK. This will have a considerable impact on the compensation awarded in personal injury cases.
It is pertinent to note that claimants benefitting from the newly reduced discount rate are not being over-compensated. Rather, this is a long-overdue change which will bring the discount rate in Northern Ireland closer to the rest of the UK. It acknowledges the very low interest rates which have been well below +2.5% for over a decade.
If a 40 year-old male has future annual losses of £50k until he reaches pension age of 65, he would be expected to receive compensation of £907,000 when the +2.5% PIDR is applied. In contrast, he would receive £1,517,750 when the – 1.75% PIDR is applied. This represents a seismic £610,750 difference in compensation levels, purely as a result of the changing discount rate.
Multiplier as prescribed by the Ogden Tables 8th Edition; Assuming a 40-year-old male who reaches State Pension Age at the age of 65.
What are the other implications?
Whilst the significant reduction to the PIDR is welcome news for claimants, it is less so for insurers, who are likely to see a proportionate increase in the levels of compensation paid out.
There may be a knock-on impact on other stakeholders too—personal indemnity costs for individuals may increase as the insurance companies try to mitigate future liabilities.
In summary, the scheduled change to PIDR in Northern Ireland is set to have a huge impact on the level of compensation received by claimants in personal injury cases, particularly in catastrophic injury claims which often involve large levels of compensation, commensurate with the financial burden imposed on the injured party as a result of the accident. The change is an opportunity to ensure fairer compensation for claimants reflecting the magnitude of the injury suffered. Now more than ever, engagement with an expert to prepare a robust and fair Forensic Accountant’s report is essential.
Here to Help
If you have any queries on the new PIDR, or any other forensic accounting matter, please do not hesitate to contact our Forensic Accounting team who will be happy to advise.
Eimer Magee / Managere.email@example.com