The Department of Justice has indicated that it intends to change the personal injury discount rate and this is set to happen on 31st May 2021.
What is the Personal Injury Discount Rate?
The Personal Injury Discount Rate is a percentage applied to lump sum compensation awards for future care and loss of earnings, paid to a person who has suffered personal injuries. The discount rate is applied to take account of the amount that would be expected to be earned from investing the lump sum. The award as adjusted should put the claimant in the same financial position they would have been in had they not been injured, without under- or over-compensating them.
What is changing?
The Damages (Return on Investment) Bill was introduced to the Assembly on 1 March 2021 and given the difficulties in securing passage of the Bill through Stormont in a timely fashion, Secondary Legislation will be brought before the Assembly by the Department of Justice to change the current discount rate in Northern Ireland from 2.5% to a new rate of minus 1.75%.
Despite changes in England, Wales and Scotland back in 2017, the Discount Rate has remained at 2.5% in Northern Ireland since 2001.
The Damages (Return on Investment) Bill, which follows a public consultation last year, intends to change how the personal injury discount rate is set.
The Bill also provides for regular reviews of the Personal Injury Discount Rate. The first review, which will begin as soon as the legislation has been enacted, which is expected to be early next year. The aim of regular reviews of the Personal Injury Discount Rate, at least every five years, is to ensure that the rate is aligned with changing financial conditions.
What does this mean?
Recent uncertainty about the discount rate has caused delays to personal injury claimants receiving their compensation. This legislation will bring that uncertainty to an end and thousands of individuals in Northern Ireland will now benefit from this change.
The new rate of minus 1.75% will mean more favourable awards for the claimants but will not be good news for insurers. It could also increase personal indemnity costs.
CavanaghKelly has an experienced Forensic Accounting team on hand and would be happy to assist if you have any queries or issues.
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