Today, the Government Actuary (GA) has published his determination that the Scottish Personal Injury Discount Rate (PIDR) is to remain at minus 0.75%. A link to the GA’s Review and Determination is here.
On 19 March 2019, the Scottish Government Minister for Community Safety, speaking in the Chamber of the Scottish Parliament, had said “I expect the new rate to save defenders money when it comes in in September.” That indication has not been borne out.
So, the Scottish PIDR is to remain half of a percent lower than the PIDR which has applied in England & Wales since 5 August 2019 (and which is governed by separate legislation).
PIDRs are used to factor notional investment income into the calculation of a pursuer’s lump sum compensation for future pecuniary loss. A higher PIDR means a lower lump sum.
The potential impact of the different rates north and south of the border is best demonstrated by looking at a hypothetical, though realistic, example. Let us assume that a catastrophically injured 17 year old man needs future care for life at £150k per year. On the minus 0.25% PIDR for England & Wales, the award for future care would be £11.6m (on a full liability basis). Using minus 0.75% for Scotland, the same award would be £14.2m. So, a difference of £2.6m in one case (albeit a very serious one). The arithmetic for these calculations uses the current 7th edition of the Ogden Tables. A link to the tables is here. The PIDR-driven differences for whole life multiplication figures for a hypothetical 17, 37 and 57 year old are shown in this illustrative table:
|whole life multipliers at different PIDRs|
|pursuer’s age (m)
|-0.75% (Continuing Scottish rate)||94.55||60.25||32.69|
|-0.25% (England & Wales from 5/8/19)||77.48||52.34||29.95|
These different figures have ultimately been driven by different legislative methodologies for setting the PIDR north and south of the border.
In England & Wales, part 2 of the Civil Liability Act 2018 confers wide discretion on the Lord Chancellor in setting the PIDR but the overriding assumption is of “low risk” investment.
In Scotland, however, the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 legislates about the PIDR in a more prescriptive way. In particular, a notional investment portfolio and a hypothetical investment period of 30 years are prescribed in the Scottish statute. This statutory portfolio (in the 2019 Act) has a smaller proportion of bonds and equities in comparison with the one modelled during the summer 2019 PIDR review south of the border. This difference in Scotland tends to drive lower overall investment yield. The legislatively prescribed Scottish 30 year investment period also tends to drive lower yield when compared to the 43 year periods modelled in England & Wales.
On future review of these PIDRs, the position is effectively the same north and south of the border, namely a five year cycle applies in both jurisdictions albeit with different trigger points for review because the first reviews under the new methodologies have not been synchronised.
The potential impact of the difference on PIDR may be exacerbated in Scotland in the short term because, at present, a Scottish court may not impose a Periodical Payment Order (PPO) on parties if they do not both agree to that. A PPO is sometimes an effective solution in providing accurate compensation in instalments on a real-life mortality basis rather than an actuarially projected one. Imposable PPOs are provided for in the 2019 Act but no date has yet been set for these provisions to be brought into force. Implementation of imposable PPOs might not happen until 2020 because of their legislative interaction with Damages-Based Agreements (DBAs) which now need to be in place first because, controversially, future pecuniary loss in a personal injury claim has not been ring-fenced for Scottish DBA purposes. DBAs are anticipated to be introduced in November 2019. It is understood that rules of court are also to be put in place before the PPO provisions of the 2019 Act take effect.
Scots Law and the Laws of England & Wales operate on effectively the same fundamental principle of personal injury damages, namely that the insured person should, insofar as possible and so far as money can ever allow, be restored to the position that he or she would have been in had the accident never happened. This principle is often referred to as restitution ad integrum. The level of compensation to be achieved is often referred to as “the 100% principle”.
Before the 2019 legislation, Scottish Ministers had followed the lead of the Lord Chancellor in setting the PIDR which, as a result, was the same (except for a short period of 8 days from 20-28 March 2017) throughout Great Britain from February 2002 until the recent change in England & Wales on 5 August 2019. The announcement of a continuing difference in rates may immediately bring a closer focus on properly applicable law in those claims involving both English and Scottish factors. The difference in rates does raise the potential for forum shopping in Scotland in certain circumstances for greater damages return than a court in England would have awarded. Time will tell whether there are any further unintended consequences of different PIDRs applying north and south of the border.
Reserves in Scotland should be reviewed with today’s announcement in mind and not reserved on the basis of the rate for England & Wales.
Frank Hughes, Partner and Andrew Gilmour, Partner