On 26 September 2024 the Government Actuary Department ('GAD') published the outcome of its review of the Personal Injury Discount Rate ('PIDR') in Northern Ireland and Scotland, increasing the rates in both jurisdictions with almost immediate effect from 27 September 2024.
| Old rate | New rate | |
| Scotland | -0.75% | +0.5% |
| Northern Ireland | -1.5% | +0.5% |
The headline return from the notional portfolio was 3.5% over Consumer Price Index ('CPI') with deductions of 1.25% for tax and advice, 0.5% margin of prudence and 1.25% for the extent to which damages inflate above CPI.
| p.a. | |
| Gross return from notional portofolio before adjustments | CPI + 3.50% |
| Standard adjustment for the impact of taxation and costs of investment advice and management | -1.25% |
| Standard adjustment for further margin involved in relation to the rate of return | -0.50% |
| Adjustment for damages inflation equivalent to Average Weekly Earnings (AWE | -(CPI + 1.25%) |
| Personal Injury Discount Rate (net of damages inflation) | +0.50% |
We now have certainty of rate in two of our three jurisdictions. The review in England and Wales started on 15 July 2024 and the rate must be set by 11 January 2025. The GAD reports give us fairly strong indications of where the rate may end up.
There has been extensive consultation on whether the single rate should be replaced by a dual rate system, but the advice on the rate in Scotland from the (GAD) in March 2024 was that:- “A single rate is still appropriate – stakeholders are concerned about the introduction of a multiple rate system, due to the added complexity and the need for a transition period. A dual rate system may be appropriate, but we expect that further evidence and analysis would be required, and may not be possible to achieve in the current timeframes.” The fact that the GAD has continued with a single rate in Scotland and Northern Ireland leads to the inevitable conclusion that we will end up with a single rate in England and Wales as well.
The starting point for what the rate will be is based on modelling a 43 year return on a notional investment portfolio and the result will be significantly affected by what investment returns are at the time it is carried out. The Institute of Actuaries Ogden Working Party has periodically carried out modelling of returns, and since 2022 the expected return has been between 1% and 2% higher than it was in 2019. The overall trend has been towards a positive rate. This prediction of an increase on investment returns was validated by GAD's advice to the Isle of Man Treasury Department on 7 July 2023. They commented that UK government bond yields had increased significantly in 2022 and 2023, offsetting the previous 10 years of falls, such that they recommended a PIDR in the Isle of Man of 1% to 1.25% higher than their advice in 2019. This resulted in the PIDR in the Isle of Man being revised upwards (from -0.25%) to +1% on 10 November 2023.
The GAD reports of 26 September 2024 are based on modelling carried out on 31 March 2024 and represent the most recent assessment of the return at the present time. The headline return was found to be 3.5% above CPI. Back in 2019 the return in England and Wales was only 2% above CPI, so on that basis the PIDR would move up by 1.5%. However, for Scotland and NI, the GAD has concluded that the deduction for tax and expenses should increase to 1.25% from 0.75% and that damages inflation is 1.25%, rather than 1% as allowed in 2019. It is very likely that the same assumptions will have been adopted in the England and Wales review.
The report in Scotland and Northern Ireland does not directly translate across to England and Wales, but bearing in mind the review in England and Wales started in July 2024 it is likely that the modelling carried out by GAD on the headline return will produce a figure very close to the 3.5% above CPI produced by the modelling in March 2024. However the notional portfolio used in Scotland and Northern Ireland is more cautious than the portfolio in England and Wales. In 2019 the slightly riskier portfolio in England and Wales produced a headline return 0.5% higher than in Scotland. It is therefore possible that the headline return in England and Wales will again be 0.5% higher than in Scotland - so 4% above CPI which would indicate that a +1% rate is the likely upper limit.
Assuming that GAD adopts similar assumptions in relation to the deductions, then the range of possible PIDR for England and Wales has likely narrowed to the +0.5% to +1.0% range on the below analysis:-
| 2019 | 2025 min | 2025 max | |
| Single or dual rate | Single | Single | Single |
| Investment return after CPI | +2% | +3.5% | +4% |
| Deducation for damages rising above inflation | -1% | -1.25% | -1.25% |
| Deduction for tax and expenses | -0.75% | -1.25% | -1.25% |
| Deduction to reduce risk of under compensation | -0.5% | -0.5% | -0.5% |
| -0.25% | +0.5% | +1.00% |
However, it is worth noting that the decision in England and Wales is ultimately one for the Lord Chancellor. Despite the difference in the slightly higher headline return rate in England and Wales, there is a strong possibility that the Lord Chancellor may seek to achieve the same rate across all jurisdictions and set the rate at +0.5% to bring all rates into line, which also has the benefit of eliminating the current disparity in damages when crossing a border.
Impact on existing cases
The recent change to the PIDR in Scotland and Northern Ireland confirms the prevailing view that returns on investments have been improving since 2019 and that the PIDR in England and Wales will also now turn positive. The rate should be at least the same as in Scotland and Northern Ireland of +0.5%, but arguably as the notional investment portfolio in England and Wales is less cautious it is likely to produce a return a further 0.5% higher. With other deductions likely to be similar then there is an argument that the PIDR for England and Wales could be as high as +1.0%. However, the good news is that we finally have a degree of certainty in that the parameters seem to have narrowed to a rate in that +0.5% to +1.0% range.
Our advice is that offers and settlements should now be based on a rate of at least +0.5% up to +1.0%. The 1.0% rate is supported by the investment analysis outlined above but with the knowledge that, as this is ultimately a political decision for the Lord Chancellor, then a rate of +0.5% to give all jurisdictions parity is also likely, or we end up with a decision somewhere in between.
Consideration should urgently be given to cases on which Part 36 offers have been made but not yet accepted. Unless the offer is expressly withdrawn or varied, a Part 36 offer can still be accepted out of time as long as the claimant is prepared to accept the costs consequences. As there is likely to be a significant increase in the PIDR, some previously unacceptable Part 36 offers may look quite generous to a claimant and they may be advised by their lawyers to accept out of time. There may therefore be cases where offers by a defendant should be withdrawn or the terms of the offer varied, hence current cases involving future losses where Part 36 offers have been made to a claimant should be reviewed as quickly as possible.
For cases that are due to go to trial before January 2025, we consider it unlikely that a judge will grant an adjournment simply on the basis that the PIDR will change in January 2025. However, there are arguments that the judge should be invited to apply a rate other than the current -0.25% as allowed under s1(2) of the Damages Act 1996 or grant judgment with multipliers to be calculated at the new PIDR.
We understand our clients need to anticipate possible outcomes in uncertain situations and we are committed to providing guidance in these areas.
