Periodical payments for future pecuniary losses.

Section 100 of the Courts Act 2003 came into effect on 1 April 2005 (yes, April Fool’s Day). The guidance reads: “The power for the Courts to order periodical payments will apply in all cases where orders or settlements have not been made before 1 April. The power to order variable payments will apply only to proceedings which are issued on or after 1 April.” It is apparently the government’s hope that periodical payments will become the norm in personal injury cases. Superficially, the idea of compensating a claimant for the actual period he requires care or cannot work, rather than an calculated estimate that is bound to be either too high or too low, is attractive provided the payments are secure and appropriately increased to take account of inflation. Despite significant evidence that suggests that wages have for many years consistently outstripped the retail prices index (RPI), it is the RPI that is applied when calculating a lump sum (and the 2.5% discount) and structured settlements which attract a tax concession on annual payments. It is notable that structured settlements were, even at the height of their popularity, usually confined to large claims; the fall of the stock market and poor annuity returns and loss of public confidence has meant they are considered less attractive than formerly. If there is underestimation of the inflation of wages by pinning the calculations to the RPI, the claimant’s lost future earnings and the wages of his or her care-givers may fall increasingly short of true compensation. Unlike a lump sum award, when compensation is paid out annually with insufficient uplift to update pecuniary losses in real terms, there is no opportunity for prudent investment to make up the shortfall. However, provided the funding of long term periodical payments into the future are secure, the claimant and his or her family will not risk the award becoming exhausted before the claimant dies. However, many claimants’ lawyers are concerned that periodical payments regimes are beset with problems (in particular, the limited annuities market – see more below – and security of future payments) which may make such awards less appealing to both sides than hoped for by government, though the enjoyment of assured annual payments (especially when free of income tax) certainly has its attractions. The new provisions and the issues and concerns they provoke are thoughtfully considered by Philip Norris QC along with his views on current and likely future guidance and government responses and judicial attitudes.