The Government Actuary's Department has published supplementary tables to the 7th edition of the Ogden Tables to reflect the recent change in the discount rate. The new multipliers have been calculated based on the same assumptions as those underlying the current tables.
The Lord Chancellor recently announced the discount rate would be significantly reduced from 2.5% to minus 0.75%. The Ministry of Justice noted the current legal framework makes it clear that claimants must be treated as risk averse investors, reflecting the fact they may be financially dependent on this lump sum, often for long periods or the duration of their life.
The amended discount rate will apply from 20 March 2017 and looks set to cost insurers billions of pounds. According to estimates by accounting firm EY, the move will result in a reserving impact in the region of £3.5bn for outstanding claims.
The Government has advised it will review the framework under which rate is set to ensure it remains fit for purpose in the future. A consultation is being launched before Easter that will consider options for reform including:
- Whether the rate should in future be set by an independent body.
- Whether more frequent reviews would improve predictability and certainty for all parties;
- Whether the methodology is appropriate for the future.