A new change to the discount rate aims to ensure that claimants are fully and fairly compensated.
In February 2017, the discount rate, which adjusts compensation payments to allow for additional income gained due to future likely investments by the payee, was changed from 2.5% down to -0.75%. This dramatic reduction reflected changes in the amount which claimants might expect to earn in interest on their compensation payment.
Whilst favouring the victims of personal injury and clinical negligence, this significant change was met with opposition from insurers who argued that the increased pay-outs would, of necessity, lead to higher premiums.
After a lengthy consultation, a new adjustment to the discount rate has now been announced by the Lord Chancellor. The rate by which compensation payments will be adjusted will change from -0.75% to -0.25% due to come into force on 5th August. The level of the discount rate will be reviewed periodically to ensure that it remains fair to the claimant, taking into account factors such as inflation, interest rates and investment habits.
Although this change will produce a reduction in compensation payments, it is a smaller adjustment than many had anticipated.
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