How are future financial losses calculated in a personal injury claim?

Compensation figures can seem baffling. A news report may say that someone received £2 million but rarely explains where the figure came from. It can sound as though a lawyer or judge simply plucked a number from the air.

In reality, substantial awards are calculated very carefully. In most high-value personal injury claims, the largest part is not compensation for the injury itself, but money to meet financial losses and additional costs that may continue for years, sometimes decades.

I have found that clients understand the purpose of compensation. However, eyes can glaze over when “multiplicand”, “multiplier” and “discount rate” enter the conversation. The calculation can sound like a dark art. It isn’t—but it does need translating into ordinary language.

Recurring future losses are usually calculated separately. The claimant’s annual loss or expense—for example, lost earnings, care costs or therapy fees—is the multiplicand. It is multiplied by a figure drawn from actuarial tables, called the multiplier. The result is the present value of the future loss—broadly, the lump sum needed now to meet it.

The purpose of damages is, so far as money can, to place an injured person in the financial position they would probably have occupied had the accident or negligence not happened. Compensation is not a prize or windfall—it meets losses and additional needs caused by the injury.

In a personal injury or medical negligence claim, those losses may continue long after the case ends, sometimes for life. They may include loss of earnings and pension benefits, paid care, case management, treatment, therapy, specialist equipment, adapted transport and help with everyday tasks.

Each item is considered separately. A wheelchair may need replacing every five years, physiotherapy may be required for three years, and care may be needed for life. No single calculation could sensibly cover everything.

A compensation award is therefore made up of many separate “heads of loss”. Compensation for pain, suffering and loss of amenity is only one part. Past losses are calculated up to settlement or trial; future losses look ahead.

That inevitably involves some crystal-ball gazing. Nobody can know exactly what will happen in 10, 20 or 40 years. The aim is a fair assessment based on the evidence. This is why a large award is not money without a purpose. Much of it already has a job: paying carers in 20 years’ time, replacing equipment or making up earnings and pension that will never be received.

The standard calculation is:

Annual loss or expense × multiplier = capital value of the future loss

The annual loss or expense is the multiplicand. The multiplier converts that recurring figure into a lump sum payable now.

An example makes this clearer. Imagine a 40-year-old whose injuries have left them unable to work. Their likely net annual earnings loss, after tax and other relevant deductions, is assessed at £15,000.

The calculation does not simply multiply £15,000 by the number of years until retirement. Instead, lawyers use the Ogden Tables to identify a starting multiplier and then consider any appropriate adjustments. If the resulting multiplier were 18, the calculation would be:

£15,000 × 18 = £270,000

That does not mean the person is expected to lose exactly £15,000 a year for 18 years. The multiplier is not simply a count of the years remaining. It converts the expected stream of future losses into a lump sum payable now, taking account of matters such as the duration of the loss, mortality and the ordinary uncertainties of working life.

It also allows for what lawyers call accelerated receipt. Without the settlement, the lost income would have been received gradually, perhaps over several decades. The claimant instead receives money now for losses that will arise in the future. The law assumes that the part not yet needed can be invested and earn a return. A discount is therefore applied so that, in principle, the lump sum and the assumed return generated from it should together meet the losses as they arise — no more and no less.

The assumed return is reflected in the personal injury discount rate. It is not based on an expectation that an injured person will make risky investments or achieve unusually high returns. The rate is intended to reflect the return available from a suitably cautious and diversified approach, after allowing for matters such as inflation, tax and investment-management costs.

The multiplicand is often where much of the real work lies. For loss of earnings, the starting point is usually what the claimant would probably have taken home had they not been injured. From that, any income they are still realistically expected to earn is deducted.

The two figures may need to be calculated separately because different multipliers and adjustments can apply to the earnings the claimant has lost and to what they may still be able to earn. In each case, the calculation is based on net income, after tax, National Insurance and any other appropriate deductions.

The evidence may also cover promotions, bonuses, pension contributions or self-employed profits. For a child or young adult with little earnings history, education, aptitude, family background and labour-market evidence may help establish the path they were likely to follow.

For care, the multiplicand is likely to be the reasonable annual cost of support recommended by medical and care experts. The same approach applies to case management, therapy, domestic help and equipment. The claimant must show that the need arises from the injury and that the cost is reasonable.

Lawyers use the Ogden Tables to find the starting multiplier. Published by the Government Actuary’s Department, the tables use actuarial and financial data to help value future losses in personal injury and fatal accident claims.

The appropriate table and multiplier depend on factors including the claimant’s age, how long the loss will continue, projected mortality and the personal injury discount rate.

The discount rate needs a little explanation. Compensation for future losses is usually paid now, sometimes decades before the money will be needed. The law assumes the lump sum will be invested and earn a return. The rate reflects the assumed net return after inflation, tax and investment costs, so that the money should meet the losses as they arise.

At the time of writing, the personal injury discount rate in England and Wales is 0.5%, effective from 11 January 2025. The Government’s website gives the latest figure. Broadly, a higher rate means a lower multiplier and lump sum; a lower rate means a higher one.

For future earnings, the basic multiplier will usually be adjusted for “contingencies other than mortality”. In ordinary language, this recognises that even without the injury, a working life might include periods of unemployment, illness, caring responsibilities or time outside the labour market. The Ogden reduction factors take account of age, sex, employment status, disability status and educational attainment, although they may be adjusted where the claimant’s individual circumstances justify it.

This is not a judgment about the person’s worth or potential. It simply recognises that few working lives follow a perfectly straight line.

Serious injury calculations are built from evidence, not guesswork. Medical experts address prognosis and, where relevant, life expectancy. Employment or accountancy experts may consider earning capacity and pension loss. Care, occupational therapy, accommodation, transport and equipment experts assess practical needs and costs.

This is one reason we favour building a team around the client. We spend considerable time identifying the right experts for each individual case rather than relying on a standard panel or a one-size-fits-all approach. We also meet with experts as the claim develops, bringing different disciplines together to explore further questions, test assumptions and consider how the client’s needs may change.

That work matters. The time spent selecting the right experts and working closely with them to understand what the future is likely to hold enables us to build a case around the individual, rather than attempting to fit the individual into a familiar template.

A figure in a spreadsheet is meaningless unless it reflects how the person actually lives, what their family can reasonably provide and how their needs may change. In every serious injury claim, the eventual valuation depends heavily on the expert evidence. Sometimes it takes years before the medical position becomes sufficiently clear for experts to give a reliable prognosis and for the claim to be valued properly. Settling too early, before that picture has emerged, can risk compensation being based on needs that later prove to have been underestimated.

Our guides to bringing a brain injury claim and spinal cord injury compensation show how rehabilitation, care, equipment and long-term financial security can all form part of the same claim.

The law does not expect certainty. It asks the court to make the best assessment it can from the available evidence.

Future losses can be calculated in separate periods if earnings or care needs are expected to change. If the evidence does not support a reliable annual figure and multiplier, the court may instead make a broader lump-sum award for the likely financial disadvantage.

A claimant cannot recover losses that could reasonably have been avoided. This is known as the duty to mitigate loss. In an earnings claim, the calculation therefore takes account of any income the claimant can realistically still earn, because the court will expect them to take reasonable steps to reduce their financial loss where they are able to do so.

That does not mean pretending that determination alone can return a seriously injured person to their former life. Nor does it require them to pursue work that is unrealistic or medically unsuitable. It means deciding, on the evidence, what is genuinely achievable with appropriate rehabilitation, retraining, adjustments and support.

Future damages are not always paid as a single lump sum. In serious cases, part of the award—often the damages for future care and case-management costs—may instead be paid as regular, secure and index-linked periodical payments, potentially for life. Any remaining damages may be paid as a lump sum.

The court must consider whether periodical payments are appropriate. They can reduce the risk of money for lifelong care running out, while a lump sum may be needed for accommodation, equipment and other capital costs.

After settlement, the award may need careful management and protection. Our compensation protection team advises on personal injury trusts, deputyships and long-term compensation management.

The multiplier and multiplicand are not designed to make compensation obscure. They turn future needs into today’s money as fairly as possible.

Whenever I see a large settlement figure, I look past the headline. Behind it may be decades of care, lost income, replacement equipment and a family trying to create a secure future after life changed suddenly.

The calculation inevitably involves actuarial tables and expert reports, but its purpose is human—to give the injured person the support and financial security they are likely to need, not only at the time of settlement but throughout the years ahead.