Personal Injury Discount Rate
With effect from 11 January 2025, the applicable personal injury discount rate (PIDR) in England and Wales will have increased from -0.25% to +0.5%. The decision by the Lord Chancellor was made following a review of the PIDR which must be conducted every five years under Part 2 of the Civil Liability Act 2018. This decision aligns with the announcement in September that rates in Northern Ireland and Scotland would increase from -1.5% and -0.75% respectively to +0.5%. This is the first time since March 2017 that the PIDR has been a positive rate.
Published: December 5th, 2024
7 min read
What is PIDR?
The personal injury discount rate is an assumed rate of return on the investment of lump sum damages and it is used to calculate how much defendants have to pay in damages to claimants in serious personal injury cases where there is compensation for future pecuniary losses. The principle behind the PIDR is that claimants should receive full compensation for losses suffered and this takes into account that they are likely to earn on the sum received before they are expected to have spent it.
How will this effect the value of claims?
Generally, the increase will reduce the value of claims for future losses by decreasing the multiplier as set out in the Ogden Tables.
For example, for a claimant (female, 25 years old) who has suffered a catastrophic injury, the cost of her care for the rest of her life amounts to £100,000 a year, there is a monetary difference of £1,500,000 with the new PIDR on this one head of claim alone, as set out in the table below on a lump-sum basis.
Old PIDR of -0.25% | New PIDR of +0.5% | ||
Multiplier (Table 2) | Claim (£) | Multiplier (Table 2) | Claim (£) |
69.32 | 6,932,000 | 54.32 | 5,432,000 |
In this example, the same claimant was employed before the accident and was earning £40,000 net per annum. Prior to her catastrophic accident she was not disabled. She did not have any qualifications and had a retirement age of 65. She now has no residual earning capacity. On these assumptions, the new PIDR reduces the value of her future loss of earnings claim on a lump sum basis by £163,296 as set out in the table below.
Old PIDR of -0.25% | New PIDR of +0.5% | ||
Multiplier (Table 10 and Table C | Claim (£) | Multiplier (Table 10 and Table C | Claim (£) |
Adjusted multiplier 29.808 | 1,192,320 | Adjusted multiplier 25.7256 | 1,029,024 |
These examples highlight the potentially significant impact of the new PIDR, as the reduction in future losses owed by defendants could even be in the millions in very high value matters!
How will this effect ongoing litigation?
Following the increase in Northern Ireland and Scotland, the increased rate in England and Wales has not come as a surprise and many insurers have already been working on this assumption and have reduced their reserves accordingly.
However, this increase may lead to the need to now revisit schedules and counter-schedules previously served and for cases approaching trial, to incorporate the new rate.
Some offers to settle which are still open for acceptance may need to be reconsidered, as they may now be too generous if they were calculated using the old discount rate. You will need to look at any current offers carefully, and consider whether these may even have to be withdrawn, as it is possible that claimants may now wish to accept historic offers if they were calculated using the old rate.
For further information please contact Annette Siallagan