The Discount Rate – Onwards and presumably Upwards

The Ministry of Justice has finally produced their response to the report of the Civil Justice Committee (CJC) on the Discount Rate which was published back in November 2017. Whilst acknowledging the concerns of the CJC the Lord Chancellor appears firm in his view that it is now time to move away from the ‘very-low’ risk calculation methodology that we have been using since 2001 to a ‘low-risk’ approach, i.e. that the claimant must take some investment risk with their damages in order to achieve the 100% compensation principle. After nearly 20-years of treating personal injury claimants as ‘no-risk investors’, it appears that the link is finally being broken. Personal Injury Claimants will now be forced to take investment risk.

In effect, the proposed Bill breaks the link in the quantum calculation away from the returns on Index Linked Gilts (ILGS) in favour of a basket of investments, including shares which ‘reflects actual claimant investment behaviour’. It is our understanding that this Bill will have its’ first reading in the House of Lords on the 23rd March.

At the same time, the MOJ response distances itself from the speculation that the new discount rate will ‘be in the region of 0%-1%’, favouring instead the correct approach of actually leaving the setting of the new rate to the soon to be formed expert panel who role will be to analyse the data, including actual claimant investment behaviour and asset class returns. This, in our view ought to help to end the speculation as to what the rate may be in the future.

A further point to note, and one of significant interest to Nestor, as financial advisers to personal injury claimants is that of ongoing investment advice costs. The MOJ is looking more closely at this on two fronts, namely whether this is reflected in the setting of the discount rate, or rather by allowing a new head of future loss. Expert Financial Advice is therefore crucial.

If you want to read the full Personal Injury Discount Rate – Response to the Report of the Civil Justice Committee please click here.

Once we have had more time to digest the report, and as you would expect we will write more comprehensively on the subject.

As ever, should you have any questions, or merely wish to discuss some scenarios with us, we’d be delighted to hear from you.