Compensators need to ensure the UK Government is aware of all the evidence when considering any possible changes to the Discount Rate.
With the consultation on whether to amend the legal basis for setting the rate closing on Tuesday 7 May, the 12 years since the Lord Chancellor last set the rate has provided ample time to assess the actual experience of claimants investing their damages.
We urge insurers, public bodies and other compensators to respond to the consultation. The Ministry of Justice's consultation accepts there is evidence that claimants do not invest solely in index-linked government stock (ILGS), as is currently assumed.
It is only if it is assumed claimants invest solely in ILGS that the claimant lobby can make a case for the Discount Rate to fall.
In fact, there is a stronger argument that the basis for setting the rate should be the reality of what claimants do with their compensation and the Discount Rate should reflect the excellent returns specialist investment companies have achieved for claimants despite the recession.
Partner Christopher Malla says:
"The Government needs to make an evidence-based decision and take into account what really happens to a claimant’s compensation. It is clear claimants do not invest in ILGS but a mixed portfolio, where the net investment return is not less than 2.5 per cent. The basis for setting the Discount Rate and the assumption that a claimant invests in ILGS must change to acknowledge this.
"Whilst claimants should, of course, receive the compensation due to them equally the Ministry of Justice should not set the Discount Rate at a level which ignores reality and over-compensates claimants to the detriment of taxpayers and policyholders."