The Ministry of Justice has said that any new framework for setting the personal injury discount rate should depend on the expected returns from investments made by claimants, barely a month after changing the rate for the first time in years.
Secretary of State for Justice Liz Truss shocked the insurance industry and pleased the claimant community in equal measure in February by adjusting the discount rate for life-changing injuries from 2.5% to minus 0.75%.
However, the Government has now launched a consultation on the rate, which ends on 11 May, and is asking for views and evidence on how claimants invest their damages. It is also asking for opinions on what could be done to make the system for the setting of the personal injury discount rate “better and fairer” and whether or not the use of periodical payment orders should be favoured over lump sum awards.
It has also suggested that the use of index-linked gilts (ILGS) as a benchmark needs reconsidering due to the fact that claimants have the potential to place themselves in a better financial position “than had the incident not occurred”. The MoJ says that they can do this by adopting a different investment strategy with the potential to outperform the risk-free rate.
“In practice claimants will pursue a range of investment strategies, but if on average they adopt a higher risk profile than ILGS and as a consequence have the potential for higher returns, then on aggregate the current law is