How the Personal Injury Discount Rate changes impact existing cases

Ellis Meade, Solicitor, in our Serious Injuries Team discusses the recent change to the Personal Injury Discount Rate and the impact this has had on the value of an existing case.

What is the Personal Injury Discount Rate (PIDR)?

The PIDR is an assumed rate of return on the investment of lump sum damages, used to calculate compensation for future pecuniary losses. This is relevant to serious injury claims, where claimants usually continue to suffer losses beyond the lifetime of the claim. When a claimant receives compensation in a lump sum form, the compensation is adjusted in accordance with the PIDR which is effective at the time of settlement (or the date of Court approval if the claimant lacks capacity). The PIDR takes into account current and future predicted investment conditions and its purpose is to maintain fairness, providing financial security to claimants whilst ensuring claimants are not overcompensated.

2024 PIDR review

In March 2017, the PIDR was reduced from 2.5% to -0.75%. In August 2019, the rate rose to -0.25%. Following the 2024 Personal Injury Discount Rate Review, the Lord Chancellor, Shabana Mahmood, determined the rate to be 0.5%, effective from 11 January 2025. Further information regarding the decision-making process and the basis of the Lord Chancellor’s decision, along with the Expert Independent Panel’s detailed report, minutes of meetings and other relevant documents can be found on the GOV.UK website.

Impacts of the change in the PIDR

The increase to the PIDR will reduce the value of claims for future losses presented on a lump sum basis by decreasing multipliers for terms certain and increasing discount factors for accelerated receipt. This will in turn likely cause insurers and public authorities to revalue their claims portfolios. Although, on anecdotal evidence, many insurers and defendant lawyers have been working on an assumption that the discount rate would rise to somewhere between +0.5% and +1.0% so it may not be every case that requires revisiting. The rise in the PIDR further underlines the preferable nature of Periodical Payment Orders (PPOs) in high value cases for claimants who have significant life expectancy, although the change may cause insurers to be even less amenable to their inclusion in final settlements.

The impact of the change in the PIDR will be felt mostly by claimants with catastrophic injuries and significant future needs. This group of claimants will be receiving less in damages as a result of the change in the PIDR and consequently will have less money to purchase goods and services necessary for their health and welfare in the long term, thus increasing the importance of sound financial planning and investment post settlement.

Part 36 offers

The rise in the PIDR could potentially increase the frequency in claimants failing to beat defendant Part 36 offers at trial which were made on the basis of the previous discount rate (-0.25%). It remains to be seen what approach the Court will take to these circumstances and the cost consequences which will flow from them. Statute is silent on how Courts and lawyers should address this issue. However, case law following previous changes in the PIDR tackled this issue. In case of Marsh v Ministry of Justice [2017], the claimant was successful in obtaining damages at trial in July 2017. The PIDR change from 2.5% to -0.75% in March 2017 meant that the claimant received £286,500 at trial as opposed to the £217,500 he would have received under the previous PIDR. The claimant pitched an early Part 36 offer at £223,500 a number of years prior to the trial. A further reduced Part 36 offer of £180,000 was made by the claimant in October 2016. The claimant sought an order that the normal Part 36 consequences apply in respect of both of these offers. Thirlwall LJ concluded that it would be unjust for the claimant to receive any benefit from the early Part 36 offer given that it only did so because of the change in the discount rate, stating that “a change in the discount rate is somewhat different in kind from the normal vicissitudes of litigation”. The latest change in the PIDR may lead to fresh case law grappling similar issues.

Impact of changing discount rate on future loss

Using a hypothetical figure of a future loss of £300,000, the following figures, sourced from Ogden table 36, illustrate the impact of the changing discount rate:

5-year term

-0.25% discount rate multiplier: 5.03 = £1,509,000.00 total

+0.5% discount rate multiplier: 4.94 = £1,482,000.00 total

Total reduction: £27,000.00

10-year term

-0.25% discount rate multiplier: 10.13 = £3,039,000.00 total

+0.5% discount rate multiplier: 9.75 = £2,925,000.00 total

Total reduction: £114,000.00

15-year term

-0.25% discount rate multiplier: 15.29 = £4,587,000.00 total

+0.5% discount rate multiplier: 14.45 = £4,335,000.00 total

Total reduction: £252,000.00

20-year term

-0.25% discount rate multiplier: 20.51= £6,153,000.00 total

+0.5% discount rate multiplier: 19.03= £5,709,000.00 total

Total reduction: £444,000.00

25-year term

-0.25% discount rate multiplier: 25.8 = £7,740,000.00 total

+0.5% discount rate multiplier: 23.5 = £7,050,000.00 total

Total reduction: £690,000.00

30-year term

-0.25% discount rate multiplier: 31.36= £9,408,000.00 total

+0.5% discount rate multiplier: 27.86 = £8,358,000.00 total

Total reduction: £1,050,000.00