On December 2, 2024, the Lord Chancellor announced a new Personal Injury Discount Rate (PIDR) for England and Wales, set at 0.5%. This new rate took effect on January 11, 2025, replacing the previous rate of -0.25% set in 2019.

What is the Personal Injury Discount Rate?

The Personal Injury Discount Rate calculates compensation for claimants who suffer personal injuries. It determines the present value of future losses, reflecting the return on investments claimants are expected to make with their lump-sum awards. A positive rate assumes a claimant's investment will generate returns, while a negative rate implies that they would not receive such returns, meaning higher compensation is needed.

Background to the 2024 Review

In 2024, the Ministry of Justice reviewed the Personal Injury Discount Rate. This process included conducting a report with two calls for evidence and considering various factors, such as:

• The use of single, dual, or multiple rates
• Claimant data and investment behaviours
• The returns claimants are likely to generate from their investments
• Tax levels and investment charges

An expert panel conducted this review and delivered a detailed report to the Lord Chancellor, who ultimately made the decision based on balancing the risks of over- and under-compensation.

Key Findings of the Review

The decision to increase the rate to 0.5% reflects improved investment returns since the last rate was set in 2019. It also takes into account the higher charges and taxes that were not considered during the previous review. The expert panel's recommendations were based on three distinct claimant groups with varying durations of future loss—20, 40, and 60 years—rather than the 43-year average used in 2019.

Box Legal's Perspective

The introduction of this new rate is likely to have significant implications for personal injury compensation claims. Many experts predict that the increase in the discount rate will result in a reduction in the multipliers used to calculate the present value of future losses. This will be particularly impactful for younger claimants, who may experience a larger reduction due to the longer period over which their losses are expected to be realised.

Lump-sum awards calculated using the new rate will be lower than those under the previous rate. However, the higher investment return embedded in the new rate should allow claimants to meet their future needs, although with a slightly higher proportion of their annual needs being covered by investment returns rather than the lump sum itself.

Alignment Across Three Jurisdictions

Another significant development is the alignment of the Personal Injury Discount Rate across all three UK jurisdictions for the first time in eight years. This consistency will simplify the compensation process, especially for compensators who operate across the UK, and provide a higher degree of predictability across all regions.

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