Discount Rate Review to Commence

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21 March, 2019

The Lord Chancellor, David Gauke MP, has officially launched the anticipated review of the discount rate in a written statement to Parliament.

The first review of the discount rate under the new Civil Liability review will start with immediate effect. Pursuant to the new process set out in the Civil Liability Act, the Lord Chancellor must conduct a review of the discount rate and make a decision whether to change or maintain the rate within 140 days of commencing the review. The new discount rate will therefore be announced on or before 5th August 2019.

The Act provides for the rate to be set by reference to a low risk diversified portfolio of investments rather than very low risk investments as at present. Low risk is less risk than would be taken by a prudent and properly advised investor and more risk than very low risk. The rate will be set by the Lord Chancellor following consultation with the Government Actuary and the Treasury; and, on the subsequent reviews to be carried out every 5 years, with an independent expert panel chaired by the Government Actuary, and the Treasury.

Forbes Comment

Currently the discount rate stands at minus 0.75% after it was controversially reduced in 2017. The lowering of the discount rate saw a dramatic increase in compensation payments. The Government's view appears to be that the present system is over-compensating personal injury claimants and therefore it is highly likely that the rate will be amended accordingly, which is good news for insurers, public sector organisations and large bodies who have significant personal injury liabilities.

For more information contact Sarah Wilkinson in our Insurance department via email or phone on 01254 662831. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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