On Monday 17 June, the NI Assembly passed new regulations which will change elements of the calculation of the Personal Injury Discount Rate (PIDR). This development follows similar regulations having been passed in Scotland earlier in the month.

The current PIDRs in each jurisdiction are -1.5% for Northern Ireland and -0.75% for Scotland. The difference is mainly due to the former being set in March 2022 but the latter having been set in September 2019.

However, following this year’s rate reviews, which will begin on 1 July and conclude just 90 days later (at the end of September), the respective PIDRs will then be the same because the new regulations have changed the parameters in the relevant rate-setting statutes to make them identical. The following parameters will now be used in both jurisdictions.

1. An investment period of 43 yearsNo change for NI, but this is an increase from the 30 year period used in Scotland in 2019.
2. A common investment portfolio, used with 1 above to derive an annual yieldThis was the same in 2019 & 2022 and is not being changed.
3. An adjustment to the yield for inflation based on Average Weekly earningsThis is a change from the use of the Retail Prices Index in 2019 & 2022.
4. An adjustment to the yield for taxation and investment costs of 1.25%This is an increase in the figure of 0.75% used in 2019 & 2022.
5. A further margin of 0.5% to be deducted from the yieldThis is unchanged.

Items 3, 4 and 5 are all deductions from the yield that results from items 1 & 2.

The numbering above is merely for ease of reference within this article and does not reflect the numbering of the relevant provisions in the respective regulations and statutes.

It might be thought that the use, at 1, of a longer investment period in Scotland would cause an increase in the observed yield. However, the advice from the Government Actuary’s Department this April, which informed the new regulations, noted that “Current market conditions suggest less variation in returns at different time periods compared to the previous review”,  which reads as an indication that any difference is likely to be modest. In addition, the advice adds that “Analysis in the 2020 Northern Ireland memo demonstrated that the difference between expected returns over 43 years and 30 years was around 0.1% to 0.2% at the time.”

The changes to points 3 and 4 above would, all other things being equal, tend to decrease the resulting PIDR and hence increase resulting lump sum awards. However, all other things are unlikely to be equal in the 2024 reviews compared to those in 2019 & 2022. What remains unknown is the level of the annual investment yield in the 2024 reviews (which will based on economic analysis to be carried out by the Government Actuary’s Department).

If the 2024 investment yield, when compared to those in 2019 & 2022, has increased by an amount greater than the combined adjustments at 3 & 4 above we would expect the resultant PIDR to move in a positive direction. If not, it could move the other way.

With the reviews due to start imminently and with uncertainty as to the outcome, taking a realistic, practical and informed approach to settlement negotiations and offers from now to the start of October will be critical.

Please contact our catastrophic and large loss claims experts in Scotland and Northern Ireland if you would like to discuss these issues in further detail.

Scotland: Vikki Melville and Andrew Constable          

Northern Ireland: Cormac Fitzpatrick and Patrick Connolly 

Official versions of the respective regulations may be accessed via these links.