Client Alerts

Keoghs Insight

Author

Samantha Ramen

Samantha Ramen

Partner

T:07713 393534

Further disappointment around the discount rate

Client Alerts01/10/2019

The decision

On 27 September, the Government Actuary published his review of the personal injury discount rate in Scotland, confirming that it would remain unchanged at -0.75%. This is bad news for compensators, some of whom were forecasting a rate of -0.25%: a level which would have put Scotland on a par with England and Wales.

What’s the reason for the different rate?

The methodology for the calculation of the discount rate in Scotland is set out in the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019. It differs from the methodology used in the England and Wales review insofar as it:

  • Sets out a notional investment period of 30 years, compared to the 43 years in England and Wales
  • Prescribes a notional investment portfolio that is more risk adverse than that used in England and Wales
  • Uses RPI as a measure of inflation rather than CPI

The standard adjustments made to allow for the impact of taxation, investment advice and the margin of prudence were the same across the two jurisdictions.

What’s the impact of the different rate?

Compensators will now face higher compensation settlements in Scotland compared to England and Wales, which is likely to lead to higher insurance premiums for Scottish customers.

Will it lead to forum shopping?

In short, no. If the accident leading to a claim happens in Scotland, Scottish law will apply and vice versa, irrespective of the nationality of the parties involved. The only exception will occur where both parties are domiciled in England or Wales, in which case the law of England and Wales will apply.