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Scotland Discount Rate

02 July 2019

It will now be the job of the UK Government Actuary's Department (GAD) to recommend a new Scottish Discount Rate for Scotland. The GAD must report to Scottish Ministers with its recommendations for the new rate by 28 September 2019.

The report, sent by the GAD to Scottish Ministers, must include a rate determination and a summary of the calculation of the rate of return. Once the recommendation is submitted to Scottish Ministers the report must be put before the Scottish Parliament as soon as practicable. The new rate will come into force the day after the report is laid. This could be as soon as early October.

The Act includes a late amendment which increased the standard adjustment for investment charges and taxation from 0.5% to 0.75%.  Based on the initial calculation of the rate under the model proposed in the Act this would lead to a negative rate of -0.25% rather than the 0% previously predicted. 

By comparison, the discount rate review started in England and Wales on 19 March and must end by 5 August.  A positive rate of 0.5% is now anticipated south of the border.

Concerns about the risk of over-compensation, forum-shopping, the level of insurance premiums, and increased costs to the taxpayer in Scotland remain.  We will be keeping a close eye on these developments and will issue further updates as the new Scottish discount rate comes into force.

PPOs

The rules relating to periodical payments (PPOs) will not come into force until the relevant Rules of Court have been drafted and approved.  There has been no indication of recent progress and it is likely it will be some time before implementation.

Once this comes into force the judiciary will then have the power to impose PPOs without needing the parties' consent although as per S3 of the Act the court must "have special regard to the pursuer's needs and preferences when doing so".

Andrew Lothian, DWF's Head of General Insurance Scotland commented:

"It is obviously a matter of concern to have such a wide difference in projected discount rates between the two jurisdictions. The risk of unintended consequences is obvious. Unfortunately, the Scottish Government has not properly calculated the likely effect of their approach, which will hit the NHS, taxpayers and insurance policyholders in their pockets. The Minister has said that the standard adjustments will be kept under review and it is important insurers and all others affected participate in that process." 

Contact

For more information, please contact Andrew Lothian, Partner, Andrew.Lothian@dwf.law

Further Reading

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