Opening a call for evidence this month, the Ministry of Justice is exploring alternative options to the Personal Injury Discount Rate (PIDR), a system used by courts to assess the size of a lump sum awarded to individuals in significant personal injury cases.
Parliamentary Under Secretary of State for Justice, Lord Christopher Bellamy KC, states in the call for evidence:
“People who depend on their compensation to support them through the significant changes they will need to make should be properly supported for the duration of their injury or, in the most severe cases, for the rest of their lives.
This is why we are committed to the principle of full compensation and continue to support the aim that seriously injured people should receive damages that meet their current and future needs, including care costs and lost future earnings.”
Seeking views on how dual or multiple rates could be structured if they were to be introduced, the MoJ consultation sets out an approach for setting different rates, applying a higher rate for longer settlements where expected returns are more significant.
The relevance for neurorehabilitation
As part of this consultation, the MoJ is also reviewing cases where a settlement includes Periodical Payment Orders (PPOs)– a highly relevant consideration for catastrophic injury cases where individuals require the most complex and costly ongoing care and rehabilitation.
What is the Personal Injury Discount Rate?
The PIDR fulfils the principle that any financial damage award should put the individual in the same position they would have been in had the accident or injury not taken place – known as the 100% principle. The MoJ describes this single rate approach as a relatively straightforward way of avoiding ‘complex and costly litigation.’
The PIDR assumes that any lump sum awarded will be invested, so interest, dividends, or other types of return can be earned – meaning the claimant would use both the lump sum and returns on it during the expected duration of the award. Practically speaking, the higher the PIDR, the smaller the lump sum payable to the claimant.
Recent PIDR rates have been set as follows:
- 2001 – rate set at plus 2.5%;
- 2017 – rate set at minus 0.75%
- 2019 – rate set at minus 0.25%
What are the criticisms of the current PIDR approach?
Critics of the PIDR have noted that this approach means that individuals with awards expected to last for shorter periods are exposed to higher investment risks and the effects of inflation.
Inflation on care costs, for example, may be higher than lost future earnings – leading to the risk that claimants with higher care needs may be under-compensated compared to other claimants.
Claimants with shorter awards may face higher levels of ‘longevity’ risk – which arises when a claimant outlives the expected duration of the award.
What are the alternative models being considered?
The Government Actuary has proposed an approach combining different rates by the duration of an award:
- ‘stepped’ – where the claimant was on either a short or long-term rate based on the award duration
- ‘switched’ – the second method differs as the short-term rate applies initially but is switched if the duration exceeds the short-term period
- ‘blended’ – where all periods before the switching point could be discounted at the short-term rate and any cashflows beyond this discounted further at the long-term rate.
This, the MoJ argue, is a ‘more logical process’.
Another option includes setting different rates for different types of loss, such as for the cost of future care or for future loss of earnings which receive different rates due to inflation level differences. The consultation also explores international models.
Read the full consultation at gov.uk.
The call for evidence will last for 12 weeks. Contributors are invited to respond by 11 April 2023 to:
Civil Justice and Law Policy
Ministry of Justice
Post point 5.23
102 Petty France
London SW1H 9AJ
Tel: 020 3334 3157
Email: [email protected]