3 August 2012Print This Post

Government finally asks the 2.5% question – is it time to change the discount rate?

Malla: need to achieve a fair and balanced outcome

The government has outlined two approaches to setting the discount rate in its long-awaited consultation on whether it needs changing

This is the first of two Ministry of Justice (MoJ) consultations on the issue, it has emerged

The discount rate is the rate of return to be expected from the investment of a lump sum award of personal injury damages for future loss, and applied to the lump sum to ensure a claimant is not over-compensated

The rate has been 2

5% since 2001, largely by reference to yields from index-linked government gilts (ILGS)

This is on the basis that claimants would seek low-risk investments

The MoJ has been under pressure to act on this, with the Association of Personal Injury Lawyers last year launching a judicial review over the failure to reconsider the rate

The consultation paper said: “Yields on ILGS have been declining for some time and there is a risk that the present rate may now be too high

” This would mean too much being taken off claimants’ damages; on the flip side, a lower discount rate would mean defendants and their insurers having to pay more

The MoJ is seeking views on the methodology to be used in setting the rate, putting forward two broad options: to use an ILGS-based methodology applied to current data; and to move from an ILGS-based calculation to “one based on a mixed portfolio of appropriate investments applied to current data”


By admin