Financial & Legal News

Compensation Changes and Awards to Increase

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Compensation awards for claimants of life-changing personal injury and medical negligence awards are to be drastically changed from later this month.

Currently the actual amount received is adjusted according to interest expected from investments, with the courts applying a calculation called the Discount Rate – with the percentage linked in law to returns on the lowest risk investments, typically Index Linked Gilts.

But from this week the Discount Rate has been lowered from 2.5% to minus 0.75%.

Claimants are treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life.

Compensation payments will accordingly rise and the news will also have a significant impact on the insurance industry and a knock-on effect on public services with large personal injury liabilities – particularly the NHS.

The new rate comes into effect on 20 March and is the first amendment to the rate since 2001.

The Association of Personal Injury Lawyers, which has long campaigned for a reduction in the rate, said the 'overdue' change means people who suffer severe life-changing injuries can now be assured that the compensation needed to look after them is calculated correctly and is sufficient to provide care for the rest of their lives.

How compensation works

Accident victims are paid compensation in a single lump sum, in serious cases this is to support them for the rest of their lives.  But that lump sum can actually increase via investments and getting a cash return.

The change was ordered because the formula assumes the victim were to invest his or her money in government bonds.

By the time inflation is taken into account, real returns on such bonds have become negative.

Commenting on the announcement, our medical negligence team solicitor, Kenneth Lees, said:  “The change to the discount rate should be welcomed.

“The rates used to calculate future losses were outdated and did not adequately reflect the potential returns on lump sum investments.

“Present day awards for future loss of earnings, care and accommodation requirements and aids and equipment were effectively undervalued as a result. The change will ensure that innocent victims of clinical negligence receive the compensation that they need to meet their future needs.”

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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