Personal Injury Compensation and The Ogden Tables & Periodical Payments
News article published on: 3rd October 2017
In the case of personal injury litigation, the various heads of damages relating to future losses may be sought either as a one off lump sum or by way of periodical payments which are annual payments of the head of loss paid until the Claimant dies or for other agreed fixed periods of time. For example future private care costs will be paid at an initial agreed annual sum which is then increased by an inflationary index to take into account the increase in care costs generally.
There are advantages and disadvantages to both and it is important that proper advice is sought before committing to either of the options available. Every Claimant’s circumstances are different and usually an Independent Financial Advisor’s report will be sought to advise on what will meet the Claimant’s needs.
The Court is obliged to consider periodical payments as a form of award for future financial loss. Various conditions must be met for the Court to order these.
Rob Aylott, Leading Catastrophic Injury Lawyer at Osbornes Law discusses the lump sum approach.
Advantages of lump sums
The advantage of a lump sum for a Claimant is that the Claimant can spend the lump sum whatever he or she wishes and can pass it on to their Estate when they die. It gives a Claimant total flexibility with their damages.
The advantage of a lump sum for a Defendant is that once it is paid, the Defendant is free from any future responsibilities to the litigant. The insurer can “close their file” upon payment.
Calculations of lump sum awards
In the calculation of the lump sum to be awarded, courts frequently use the multiplier/multiplicand approach.
Multipliers and Multiplicands
When Courts are required to calculate damages for example for future loss of earnings, the calculation can only ever be based on hypothetical future conditions. The primary aim of any calculation is therefore to produce a monetary figure which represents the actual future loss. To a certain extent this means crystal ball gazing regarding a Claimant’s future career.
Any future loss of earnings award should take into account any future promotions, pay rises and bonuses and should be calculated up to the Claimant’s anticipated normal retirement age. A multiplicand is the annual figure for loss which is multiplied by the “multiplier “ which represents the number of years of future loss to be claimed. Losses can be claimed to various ages of a Claimant eg. To various retirement ages or for the expected duration of the Claimant’s life expectancy.
For years, multipliers in the UK were generally based on the multipliers used in comparable cases. This situation changed when the book, Actuarial Tables with Explanatory Notes for Use in Personal Injury and Fatal Accident Cases was published in 1984. The book of tables was compiled by a group of lawyers and actuaries who were working in victim compensation, a group which was headed by Sir Michael Ogden Q.C. The publication became known as The Ogden Tables and is currently used by actuaries and lawyers to calculate the lump sum which must be paid in compensation in the case of personal injury or death.
What Is Contained Within The Ogden Tables?
When they were first published, the Ogden Tables had no legal authority. In 1995, under the Civil Evidence Act, they first became admissible as evidence in personal injury cases for the purposes of assessing future monitory loss. Undergoing continual revisions, the Ogden Tables are now in their seventh edition.
The first two tables within the book set out life expectancy and loss of life in men (1) and women (2) respectively. The subsequent tables delineate loss of earnings and loss of pension for various retirement ages.
In total there are 28 tables, all of which are freely accessed on the Government’s official website https://www.gov.uk/government/publications/ogden-tables-actuarial-compensation-tables-for-injury-and-death. They may also be purchased in hard copy from the Government’s Stationary Office.
Uncertainties within The Ogden Tables
Two assumptions which are notoriously difficult to estimate, underlie the Ogden Tables:
- The claimant’s expected life expectancy;
The figures contained within the Tables are based on the average census statistics produced by the ONS using projected mortality rates. These can change over time.
- An assumption that a Claimant will invest their lump sum and achieve a rate of return. A discount is to be applied to the multiplier to take this into account so that a Claimant is not overcompensated. An assumption is currently made that they will invest in risk free Index Linked Government Stocks (Gilts) and since 2001 the discount rate was set at 2.5%
Recent Changes to Personal Injury Compensation Payments – Impact On Ogden Tables
On 27th February 2017, the Lord Chancellor and Justice Secretary Elizabeth Truss announced that the Discount Rate would be lowered from 2.5% to – 0.75%. She said on her decision, ‘The law is absolutely clear – as Lord Chancellor, I must make sure that the right rate is set to compensate claimants […] I am clear that this is the only legally acceptable rate I can set’.
The new Discount Rate came into effect on 20th March 2017. However, the tables in the current seventh edition of the Ogden Tables were published prior to this date and therefore are not tabulated to the lower rate. To address this issue, supplementary Ogden Tables have been produced, which provide multipliers at the new rate. At present, these supplementary tables may only be found on-line at https://www.gov.uk/government/publications/ogden-tables-actuarial-compensation-tables-for-injury-and-death and are not yet available in hard copy.
Effect of changes
The effect are changing the discount to a minus figure (-0.75%) had a dramatic impact on the level of damages for future losses that a Claimant could claim by way of a lump sum award.
In most cases the lump sum awards/settlements rose substantially. There was a major financial impact on the insurance market and the government who are the major compensator for clinical negligence claims against the NHS.
Post March 2017
The insurance industry was in uproar following the change and managed to secure a meeting with the Chancellor of the Exchequer the day after the announcement. The government immediately announced a review of the discount rate which is awaited. It is anticipated that the power to set the discount rate by the Lord Chancellor may be changed and also its methodology ie. the assumption that a Claimant will invest in risk free investments. The government may overturn the decision in Wells v Wells which establishes this. Whatever happens we anticipate that the discount rate will return to a positive figure but where it will end up is complete speculation at this stage. This uncertainty does not assist in trying to settle catastrophic cases which are not listed for a trial in the next 6-8 months and careful advice to clients is required.
Rob Aylott is a leading Catastrophic Injury Lawyer with over twenty years of experience helping individuals who have suffered a life changing injury. To speak with Rob or another member of the personal injury team call us on 020 7485 8811 or fill in our online form.