The government may have to backtrack on plans to increase the rate at which discounts from compensation payments are calculated, new research has suggested.
The Ministry of Justice is preparing a response to its second consultation on the rate of deductions from damages awards.
Currently 2.5% is discounted from large settlements – usually involving medical negligence – on the pretext that individuals will invest their money in index-linked government stocks and receive a similar return.
In February, the government’s response to its first consultation suggested that successful claimants were prepared to invest in higher-risk investments than currently assumed.
But research published by the MoJ last week showed that claimants are ‘cautious and risk-averse’ in their investments. ‘Claimants tended to focus on minimising the risks that they face, rather than seeking opportunities to get higher rates of return,’ the study concluded.
A decision would not appear to be imminent, as the research went on to note ‘several gaps’ in understanding.
An MoJ spokesman declined to say when a decision will be made but stated the rate would ‘remain fair for all parties’. Next steps would be announced ‘in due course’, he added.
Insurance law firm Kennedys said it expected further delays to a decision on the rate while the government collects further evidence.
Partner Christopher Malla said: ‘Public bodies and insurers are waiting for clarity on this important issue and we continue to urge the government to maintain one discount rate for all heads of loss.’