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Accident victims who suffer severe and life changing injuries are often awarded a lump sum in compensation for future losses.  For example, claimants who suffer a serious injury may be able to claim a lump sum to compensate them for future loss of earnings and/or future care costs. In principle that lump sum if invested should be capable of being drawn down over the projected period of loss so that by periodically withdrawing a combination of capital and accrued interest the compensation will only run out at the end of the relevant period.

In calculating that amount the courts refer to actuarial tables known as the Ogden Tables and in finalising the figures, the courts apply a discount rate set by the Lord Chancellor. Claimants who receive a lump sum compensation payment will generally try and place their compensation in low risk investments. The discount rate is therefore supposed to reflect the rate of interest which a cautious investor might obtain.

The discount rate was last set at 2.5% in 2001, since that time interest rates across the board have reduced dramatically and the interest which can be obtained in low risk investments is almost marginal. The effect of this is to leave accident victims with the very worrying prospect of their compensation running out ahead of schedule.

The Lord Chancellor has been under pressure for some considerable time to take account of this and has finally recognised that if claimants are to be placed in the same financial position they would have been had they not been injured the discount rate must be changed. The Lord Chancellor has therefore made the decision to reduce the discount rate to minus 0.75% with effect in England and Wales from 20th March 2017. It is to be hoped that the Scottish Government will follow suit as soon as possible with an order to bring the Discount Rate in Scotland into line with that in England.

This change is long overdue and will have a significant impact on the amount of compensation awarded to claimants with significant future loss claims.

It is however worth noting that this decision has met with significant opposition from the insurance industry. In announcing this decision the Ministry of Justice has pledged that the Chancellor of the Exchequer will meet representatives of the insurance industry to assess the impact of the rate adjustment and that the Government will launch a consultation in the coming weeks to consider whether there is a better or fairer framework for claimants and Defendants with the Government bringing forward any necessary legislation at an early stage. It is to be hoped that this consultation will not result in legislation which detracts from the change in discount rate or threatens the principle of fair and adequate compensation for accident victims.

Robert McDonald, Solicitor Advocate and Head of Dispute Resolution team

Chambers UK 2106

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