One of the dilemmas we have with advising our clients on the form of their compensation once a case reaches settlement is do they go for the independence and finality a one off lump sum gives, or should they go for a lump sum for their “immediate needs”, with the remainder of compensation payable on an annual basis for the rest of their life?  These payments are known as “periodical payments”.

Many years ago, periodical payments were not available . Compensation was paid in a lump sum and that was that.  It was left to the Claimant to invest it or spend as they saw fit. For those with extensive future needs, such as care, if it ran out, it ran out. They could not go back for “top-ups”.

As inflation increased and with it carer’s wages, money did start to run out.  The Claimant had to fall back on State funding. But what if compensation could be paid differently? What if there could be a lump sum to set the injured person up with proper accommodation, aids and equipment, transport and suchlike and then after that, they could get a lump sum annually to meet their needs due to their disability?  This way they would be protected for life.

So the concept of the periodical payment was born.  At first, the Courts couldn’t order compensation to be paid this way; it had to be by agreement with the Defendants and became a negotiating tool.

But now the Courts can order compensation to be paid this way.   Sometimes Claimants don’t like the idea and for some it’s not suitable, but we do now have to consider them in every high value claim.  There are pros and cons to both and to help Claimants and the Courts decide, we commission an independent financial report which sets out the arguments and will usually make a recommendation as to which would be best.  If a Claimant has capacity, that is, does not have any mental issues or say, a brain injury, which would prevent them managing their own affairs, then they can ignore the report and decide for themselves. If someone lacks capacity, then a Court will decide which approach is in that Claimant’s best interests.

The main issues are with a lump sum, the Claimant is free to do what they like with their money at any time. They can be cautious and invest as prudently as they can for the long term, or they could blow it all on holidays or racehorses if they wanted to. As long as they understand once it’s gone, it’s gone, then that’s their decision.

With periodical payments, although some of it can come as a lump sum, the vast majority will be paid in annual payments for as long as the Claimant lives. This gives security, which some people prefer. They know the money they need for care etc will not run out.  The downside is that although the annual payments will usually be quite substantial, they do have to be managed like any annual salary and there is usually not a lot of room for expensive “treats” each year such as round the world cruises.

But each case is different and the approach we advise is based on the individual circumstances of each Claimant, with guidance from the independent financial report.

For more guidance and support contact our team on 01522 561020 or email enquiries@ringroselaw.co.uk

Coming up….

The next blog illustrates how it can be a gamble for both parties whichever way it goes and how sometimes, unexpected things can happen.

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