New Personal Injury Discount Rate (PIDR) to Take Effect in Northern Ireland from 27th September 2024
The Personal Injury Discount Rate (PIDR) plays a key role in ensuring that damages awarded to plaintiffs in serious and long-term injury cases are fair and reflective of future financial needs. The rate influences the lump sum settlements by considering how plaintiffs are expected to invest their compensation, and how much they might earn on that investment over time.
As of 27th September 2024, a new PIDR will has now been applied in Northern Ireland, following a review carried out by the Government Actuary’s Department (GAD) in line with the Damages (Return on Investment) Act (Northern Ireland) 2022. The new PIDR will be set at +0.50% per annum, replacing the previous rate of -1.5% per annum.
Background: How the PIDR Is Set
The PIDR is designed to account for the investment returns plaintiffs may receive when their compensation is provided as a lump sum. The aim is to ensure that the sum awarded is sufficient to cover their future losses and expenses, without overcompensating or undercompensating the plaintiff. The lump sum is adjusted for:
• The period over which the losses and costs are expected to be incurred.
• The investment return the plaintiff is expected to earn.
The 2022 Act introduced a new method for determining the PIDR by having the Government Actuary assess the expected return based on a notional investment portfolio. This approach considers several factors, including taxation, investment advice costs, and the need to ensure plaintiffs are not left underfunded.
Key Adjustments in the Latest Review
The most significant change in the new rate stems from an increase in expected investment returns. In this review, the gross return from the notional portfolio was estimated at CPI + 3.50% per annum before any adjustments. After accounting for taxation, investment costs, and a further margin, the net rate is CPI + 1.75% per annum. Once adjusted for damages inflation (in line with average weekly earnings), the final PIDR stands at +0.50% per annum.
This marks a notable increase from the previous PIDR of -1.5% per annum, reflecting improved investment return expectations between the last review and this one.
Implications for Future Cases
For insurers and plaintiffs alike, this adjustment in the discount rate will impact the calculation of future loss claims in personal injury cases. A higher PIDR means that, in general, lump sum awards will be lower, as the expectation is that plaintiffs will be able to generate a higher return on their investments. However, the structured adjustments ensure that plaintiffs are still fully compensated for their expected losses.
At Johnsons Solicitors we remain at the forefront of personal injury defence work and are ready to advise our clients on how this change will affect current and future claims. For more information or to discuss how this new rate may impact your case, please get in touch with our team.