Ogden 8: shifting the balance

The Ogden Tables, love them, loathe them or fear them, have been updated for the first time in nearly a decade. The eighth edition took effect from 17 July 2020.

One of the laudable (if unachievable) aims of the Ogden working group was to simplify the use of the Ogden Tables in the calculation of future losses in damages actions.

The effect of the updating of the underlying statistical data and the methodology used in its application appears to favour defenders; that is to say, that the multipliers for future losses are generally lower.

Tables reworked

There are now 36, rather than 28 tables. They include additional tables for loss of earnings to age 68, reflecting the state retirement age. There has been a reworking of Tables A-D in relation to educational attainment, a revised definition of “disability”, and further guidance provided in relation to the quantification of fatal claims.

The introduction of tables calculating multipliers to retirement ages of 68 and 80 will be a welcome addition to those who have had to interpolate the Ogden 7 tables to calculate accurately the state retirement age of 68, which was not previously provided for. So too will be the separate publication of the Additional Tables in Microsoft Excel format to allow for the calculation of multipliers at discount rates of -0.75%, -0.25% and 0% from any age at date of proof to any future age (up to 125).

The eighth edition does not address the current COVID-19 pandemic, perhaps for obvious reasons. The effect that the crisis will have on future mortality is as yet unknown, and perhaps will not become clear for years.

Mortality data

The reliance on the Office for National Statistics (ONS) downward estimate of the rate of improvement in life expectancy has generally translated into a reduction in life multipliers across the board. However, the most significantly affected group are older female pursuers who, in some cases, see as much as a 9% reduction in predicted life expectancy. Younger pursuers may see a reduction of between 1 and 2%.

Revised definition of “disability”

The eighth edition has responded to the increased prevalence of the working population being classified as “disabled” (an increase from 12 to 19%).

Ogden 7 adopted the definition provided in the Equality Act 2010, which was that, in terms of s 6 of the Act, a person is disabled if that person has: (i) a physical or mental impairment; and (ii) the impairment has a substantial and long-term adverse effect on that person’s ability to carry out normal day-to-day activities.

Ogden 8 reverts to using a definition based on the Disability Discrimination Act 1995, which applied at the time of the research underpinning the Table A-D reduction factors. To fall within that definition, the impairment must be work-affecting, either by limiting the kind or the amount of work that a pursuer is able to perform. The definition reads: “A person is classified as being disabled if all three of the following conditions in relation to ill health or disability are met:

• (i) The person has an illness or a disability which has or is expected to last for over a year or is a progressive illness; and
• (ii) The DDA 1995 definition is satisfied in that the impact of the disability has a substantial adverse effect on the person’s ability to carry out normal day-to-day activities; and
• (iii) The effects of impairment limit either the kind or the amount of paid work he/she can do.”

Anyone not satisfying all branches of this three-part test is to be considered “Not disabled”.

The terms “substantial” and “normal” will likely require judicial interpretation. The guidance notes to the eighth edition provide that “normal” day-to-day activities are those which are carried out by most people on a daily basis and which include those carried out at work.

Education attainment categories

The previous categories of D, DE-A and O have been done away with. In their place, levels 1, 2 and 3 have been introduced. As the explanatory notes indicate, level 3 is the highest level educational qualification level and is used as a proxy for human capital/skill level. The notes specify that those in professional occupations such as law, accountancy and nursing who do not have a degree nonetheless meet the criteria and fall to be treated as if they did.

Disappointingly, despite later retirement ages, the tables only provide for reduction factors up to age 54 and simply propose that, for claimants over that age, reduction factors will be “particularly dependent on individual circumstances” and tend to increase towards 1 at retirement age for those who are employed and towards 0 for those who are not. It seems this will result in a lack of precision and consistency of approach in calculations.

Examples: comment

It can be seen from the examples below that lifetime losses are the awards most affected by the application of the new mortality data. The examples demonstrate that the awards for future care using Ogden 8 are materially lower than those achieved when using Ogden 7. The overall reduction in the level of awards may be significant.

Pension loss and fatal claims

Section C of the explanatory notes deals with pension loss, and new guidance is provided to reflect the auto-enrolment requirement in effect since 6 April 2019. The explanatory notes offer the helpful suggestion that where pension losses are complex (when are they otherwise?), assistance from an actuary or forensic accountant should be sought.

Section D provides revised guidance in relation to the calculation of fatal claims in England, Wales and Northern Ireland in light of the Supreme Court’s decision in Knauer v Ministry of Justice [2016] UKSC 9.

Periodical payment orders (PPOs)

In Scotland, the courts still have no power to implement PPOs. That power will exist whenever the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 eventually comes into force. It is unclear when that will happen, but it is reasonable to anticipate that, when it does, the Scottish regime will closely mirror that which has applied in England & Wales since 2005.

The explanatory notes incorporate a new section E that provides guidance on the application of the discount factors in Tables A-D to the indexation of periodical payments for loss of earnings. It is proposed that, if loss of earnings claims are to be paid in the form of periodical payments, the issues of indexation, employment risks and residual earning capacity require to be considered and accounted for. The correct approach requires the identification of an inflation linked indexation figure for the pre-accident employment and a separate inflation linked index for the post-accident employment.

The effects may be limited in catastrophic injury cases where there is unlikely to be any residual earning capacity.

Summary

The eighth edition provides overdue revision on Ogden 7, demonstrates a clear effort by the working party to make matters more user friendly for practitioners and offers welcome clarity on some calculation methodology.

Application of Ogden 8 will generally result in lower awards for certain categories of pursuer. The reduction in many instances is small but, for older female claimants with significant annual losses, the impact may be significant. The effects will be most evident in catastrophic injury cases but, in reality, the effect of the changes in multipliers can only be assessed on a case-by-case basis.

The redefining of “disabled” will tighten up the class of pursuer who will benefit from the application of the increased discount factor when it is appropriate to do so. The introduction of new, wider categories of educational attainment is to be welcomed, providing greater accuracy in the assessment of discount factors. It remains to be seen whether the “rules” set out in the explanatory notes will be approved and adopted by the courts or whether departures will be made, particularly with claims for future loss of earnings, as were made under Ogden 7.

To reflect these changes, practitioners may be well advised to consider reviewing current pursuers’ offers, tenders and advice given to insurers on their reserves. Compensators will welcome the arrival of Ogden 8, given disquiet following the outcome of the 2019 review of the discount rate in Scotland.

The application of Ogden 8 to some commonly encountered scenarios has the following results:

Example 1

A female (aged 30 at date of proof) suffered an injury to her right arm. Her earnings pre-injury were £20,000 net; post-injury she is unable to return to work; she has a retirement age of 65; she falls into level 2 in terms of her educational attainment; she is considered disabled; she has no residual earning capacity; she requires future care at a cost of £50,000 a year. Her future loss is as follows:

The Ogden 8 increase in the earnings multiplier (0.04) and increase in discount (0.01) results in a reduction in the award of damages for future loss of earnings of £7,182 or 1.1%. The decrease in the life multiplier (2.9) reduces the claim for future care by £145,000 or 3.77%.

Example 2

The pursuer is a 30-year-old male at the date of proof, with the other factors in example 1 above remaining the same.

The Ogden 8 increase in the earnings multiplier (0.16) and decrease in discount (0.01) results in a reduction in the award of damages for future loss of earnings of £7,182 or just over 1%.
The decrease in the life multiplier (1.61) reduces the claim for future care by £80,500 or 2.3%.

Example 3

A female (aged 60 at proof) requires equipment at a cost of £50,000 a year for life. Her future loss is as follows:

Application of Ogden 8 results in a 6.58% reduction when compared to the same calculation using Ogden 7.

The position in relation to a 60 year old male pursuer with the same lifetime loss is:

In this case, the reduction is 5.21%. This is a not insignificant downward trend which, when applied to the upper reaches of lifetime losses, will result in significant reductions in awards of damages.