The Government Actuary Department has this morning announced that the Discount Rate in Scotland will remain at -0.75%, in his role as the ‘rate assessor’ (under the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019).
It had widely been predicted that Scotland would likely move to the same rate as England at -0.25. However, as the rate is likely to be in force for 5 years, the Actuary considered how the expected returns on investments have changed between December 2018 and June 2019. The new rate reflects a downturn in assumed returns (-0.38%) due to recent volatility in investment markets linked to short-term political and financial uncertainties. The rate is based on a return of RPI +0.50% pa. Had it been set under the mechanism in the previous Act (average yields on Index-Linked Gilts) the rate would have been in the region of RPI-2.0% to RPI-1.5% pa. So small comfort, but it could have been worse.
As expected the Actuary also assumed a passive investment approach. As we know, people are generally not that risk averse, and investments made and returns achieved are in reality generally more favourable. However, a more active investment approach was rejected as resulting in inconsistency, including the higher expenses incurred by such an approach. He has applied -0.75% adjustment for tax and costs of investment advice and management and a further -0.5% for further margin in relation to right of return.
Whilst provision is made for consultation by the Actuary under the Act, the Actuary chose not to do so. The Government Actuary has recommended that the Discount Rate is reviewed again when the consultation on the RPI (set to begin January 2020) is concluded. We recommend that appropriate representations are made in relation to this.
It is disappointing that this results in inconsistency between the rates in England and Scotland. We may see more forum shopping in high value/catastrophic actions as a result.
For your ease, a link to the full review and determination is available by clicking here.
To view/download as a PDF please click here.
If you would like to know more about this matter, please speak to your contacts at Plexus Law:
Cameron McNaught, Partner
T: 0131 3229 252 | M: 07972 638 356 | E: firstname.lastname@example.org
Laurie Traynor, Partner
T: 0131 3229 253 | M: 07972 638 357 | E: email@example.com