Periodical Payments
What are Periodical Payments?
When a case succeeds, the claimant is entitled to recover compensation to ‘put them back into the position they were ‘but for’ the negligence.
Compensation is awarded as either a lump sum or periodical payments, or both. In serious injury cases, like birth injury there is usually both. Usually, the lump sum will pay for the house, past care and the claimants pain and suffering. Lump sums are affected by the Discount Rate (see blog).
Periodical payments are made annually, either to the COP Deputy or the Trust Fund set up for a child with capacity. They are not affected by the Discount Rate.
https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm5020
What do Periodical Payments meet the cost of?
- Nursing Care
- Rehabilitation, Physiotherapy, hydrotherapy etc to improve the injured persons functional abilities.
- Equipment for aids to facilitate daily living and mobility.
- Medical expenses: medication, treatments, and specialist consultations
- Education and training.
- Living expenses
- Case management and Deputy’s costs
Other costs may be related to the individual child, so the above is general in nature.
Are Periodical Payments cost effective?
Periodical payments are controlled by the Defence as they have an agreed fund at settlement they invest to provide a regular payment for the claimant for life. The ‘for life’ aspect is very important, as life expectancy can form a part of the award for compensation. If life expectancy is short lump sum payments can be smaller. Periodical payments are protected by the governments Financial Services Compensation Scheme.
Periodical payments are tax exempt in the case of the Claimant; the person who receives a periodical payment on behalf of the Claimant such as a *parent or guardian; a trustee of a trust fund for the Claimant. Periodical payments usually require a consent order from the court.
The Courts allow periodical payment amounts to change every year and to fall in line with the Retail Price Index which measures the regular change of inflation in the UK. If there is a modification made by the court, this usually means an increase, to ensure payments stay in line with the cost of living.
* Payments usually go to the Deputy in the case of parents and guardians in Birth Injury cases.
Advantages of Periodical Payments
- There is no fear of money running out for the claimant or the family as periodical payments are designed to last a lifetime and are protected by the governments Financial Services Compensation Scheme.
- Periodical payments are not taxable whereas an invested lump sum is
- Means-tested benefits are not affected by periodical payments, so there is no need to organise a personal injury trust
- The responsibility of receiving a lump sum and it generating enough income on an ongoing basis is transferred to the other party
- Lump sum payments require an estimated guess at life expectancy and how it could have been had an accident or injury not occurred
- Payments can also be increased and this is particularly relevant to children who are in receipt of the compensation funds, reflecting the fact that parents are likely to be less likely to be able to offer care later in life and professional care will be required.
Disadvantages of Periodical Payments
- There is a loss of control to some degree regarding the management of the investment in that achieving better growth cannot be controlled by the claimant
- With a lump sum, there is a clear amount of compensation that will be paid; with periodical payments, the exact, overall amount is not certain
As you can see the advantages far outweigh the disadvantages in birth injury cases.
