On 2 December 2024, it was announced by the Government Actuary’s Department (Personal Injury Discount Rate - England and Wales - GOV.UK) that the Personal Injury Discount Rate (‘PIDR’) in England and Wales will change to 0.5% from -0.25% announced. The change will take place from 11 January 2025.
The PIDR is used within personal injury litigation, including medical negligence claims, to assess the effect that any early receipt of compensation that a claimant may receive for future losses on the assumption that the compensation will be invested.
When a claimant receives compensation for a future loss and the financial consequences of the same is not expected to be incurred for some time, the court assumes that the future loss received will be invested. The PIDR is used to ensure that the claimant is adequately compensated, but also to balance the fact that early receipt of compensation for a loss that is expected to take place in the future will generate profit when invested.
The previous -0.25% PIDR was set in 2019, and it reflected the change in the market including the increase in the interest rates set by the Bank of England and difficulties with inflation, which had an effect on the way that investment portfolios were performing and the profit that could be expected to be received. For anyone who received their compensation early and invested it, it was assumed that it would be unlikely to receive a high rate of return or generate any profit. Therefore, the claimant would be worse off when they reached the future date when the financial loss was expected to be incurred due to poor performance of the investment of the compensation. The -0.25% PIDR resulted in claimants receiving an increase in the amount of compensation for their future loss to reflect the uncertainty in the financial market and how investments were performing.
The change from -0.25% to 0.5% will reduce the compensation that is received for future loss but reflects a positive view that investment of any compensation for a future loss is now likely to result in profit because of improving investment conditions. This balances the interests between the claimant, who wants to be fully reimbursed for their losses, and the defendant who does not want to provide a windfall if the compensation for the loss is invested.
The increase of the PIDR to 0.5% will now mean that although the claimant will receive less compensation in hand compared to what would have been expected under the PIDR of -0.25%, it is likely to encourage settlement between the parties, especially for higher value claims.
The increase of the PIDR reflects the more positive view of the overall financial performance of the market. Practically, for solicitors it is time to review any offers made, and whether the change in the PIDR now makes those offers more attractive.
