Personal Injury Discount Rate (PIDR)

At the end of the case you will probably hear the term ‘discount rate’ applied to your claim and compensation, so I’ve briefly explained here what it is.

In Personal Injury cases (of which Birth Injury and HIE Litigation is a type) The injured party (the Claimant) will usually receive payment to compensate for an injury caused by another person/company/organisation’s negligence. 

In Personal Injury cases the aim is ‘to place the injured party as nearly as possible in the same financial position he or she would have been but for the accident.’ 

This is achieved by assessing how the injury has affected the person and paying them a sum of money, either as a lump sum and/or regular annual payments, known as periodical payments.  

These periodical payments are regular payments, often made for life, and can provide a degree of security for future care and other ongoing needs. Where future losses are paid by periodical payments, the discount rate does not apply to those payments in the same way as it does to a lump sum. The exact structure will depend on the settlement.

 The discount rate is a mechanism used when calculating the lump sum needed to meet future financial losses. It takes account of the investment return that a claimant is assumed to be able to achieve on the money.    

However, the lump sum is subject to the discount rate, which is simply a mechanism to reduce the risk the claimant is under or over compensated.  The discount rate is a mechanism used when calculating the lump sum needed to meet future financial losses. It takes account of the investment return that a claimant is assumed to be able to achieve on the money.

In normal circumstances the injured party will invest the money in low risk investments which aim to provide income for the remainder of their life.

For children, how compensation is managed after settlement depends on the child’s capacity, age and the arrangements approved by the court. Where a child lacks capacity to manage their compensation, a Deputy may be appointed by the Court of Protection. Where a child has capacity, different arrangements may apply, particularly once they reach adulthood.

The discount rate is set by the Lord Chancellor and is reviewed every 5 years. Following the 2024 review, the Lord Chancellor set the new rate at 0.5%, which took effect on 11 January 2025. The previous rate was -0.25%.

The rate is set by the Lord Chancellor following a review which involves an independent expert panel and analysis by the Government Actuary’s Department. The process considers factors including expected investment returns, inflation, tax and investment expenses.

In simple terms, a negative discount rate generally produces a higher lump-sum award, while a positive rate produces a lower lump-sum award. The move from -0.25% to +0.5% therefore generally reduced lump-sum awards for future losses.

Link for Further information from GOV.UK on the PIDR

Sources: Ministry of Justice / GOV.UK, Government Actuary’s Department