A review of the investment portfolio used to set the personal injury discount rate is crucial, APIL has told the administrations in Scotland and Northern Ireland.
APIL has responded to a consultation on whether any of the factors which are taken into account when setting the discount rate should be altered. This comes ahead of reviews of the personal injury discount rates in both jurisdictions, which are due to start in July next year.
“It is crucial that the investment portfolio which is used to set the personal injury discount rate is looked at again with urgency. The adjustments made for the cost of advice on tax and investments also must be reviewed as injured people are paying more in reality than what is accounted for by the legislation,” said Gordon Dalyell, APIL representative for Scotland.
“The discount rate is calculated by using a portfolio with asset classes and percentage holdings which is designed to match the objectives and characteristics of the hypothetical investor. It is vital that these underlying assumptions are correct in order to ensure that the discount rate is set at the right level to avoid under compensation,” he said.
“Injured people leave a lot more money just in a bank or building society account than the 10 per cent the legislation envisages. They often delay any investments they do make for several years while they set up adaptations to their homes, buy equipment, and work out how to function day-to-day in the new version of their lives,” he explained.
“The fact is injured people simply do not behave like the ordinary investors the legislation assumes them to be. They are not inclined to risk their compensation in a bid to reap great returns,” said Mr Dalyell.
APIL said that the current 0.75 per cent adjustment to compensation payments to allow for the cost of professional advice on tax and investments is too low.
“The real cost of advice is much higher than the 0.75 per cent adjustment will cover. We consulted with several independent financial advisors who gave a range of fees between 1.5 per cent and 2.5 per cent. It is clear that more needs to be given back to injured people for these important costs,” said Mr Dalyell.