The Ogden Tables are
essential for practice in clinical negligence and personal injury and form an
integral part of almost any schedule of loss.
However, understanding their purpose and how to use them can be difficult.
In this series I
therefore intend to break down some of the fundamental principles underpinning
the Ogden tables, to show how
they work.
I will also provide
worked examples of how to carry out some of the common (and less
common) calculations.
This first post
provides a brief overview of the purpose and basic operation of the tables, for annual future losses to death or retirement.
________
What are they?
- The “Actuarial Tables with Explanatory Notes for Use in Personal Injury and Fatal Accident Cases”, produced by the Government’s Actuary’s Department, and last issued in 2007. Available here.
- They are admissible by virtue of Section 10 of the Civil Evidence Act 1995, to calculate “the sum to be awarded for future pecuniary loss”.
The loss in the schedule is the multiplicand. So: annual loss x multiplier (from Ogden table) = award.
Why can’t the claimant just have their future loss?
Put simply, because there is a difference between ‘loss’ and
the award required to meet that loss. If C were simply given the total sum in
full, they would be over compensated. There are a number of reasons for this,
set out below.
The multiplicand accounts (as best the
statistics allow) for those factors and reduces the sum awarded accordingly.
1.
The period before the loss
If a loss is not incurred until some future event, there is a clear delay. Even if the loss begins immediately and continues not all of the loss is incurred immediately; only a portion each year. So for most of the loss, there is a period before it is incurred.
Therefore, C can invest a lump sum award and earn interest on it, drawing from it as necessary. It
follows that, in order to have a sum available to him to pay an expense at some
point in future, it is not necessary for him to receive all of that sum now.
For example, if a claimant who will suffer a £50,000 loss every year for 20 years was awarded £100,000 now, and he invested it, he could well have
significantly more than that sum over the period of the loss.
2.
The period of loss
The claimant might not in fact incur the whole (or any) of
the loss. Firstly, and most simply, the claimant will eventually die and so the life expectancy must be taken into account.
In the case of lost income to retirement, there are other risks
(such as redundancy, periods of unemployment, etc) accounted for with the help
of Tables A-D. These are risks that the claimant could have encountered in any event and so must be taken into account when we are awarding a sum
for future loss of earnings.
The Basic
Calculations
As I have noted, the point of the Ogden tables is to provide
you with a multiplier (or multipliers) for C’s future losses.
The means of calculating different multipliers can be quite
complicated. However, the most common uses of the tables are really quite
straightforward.
I have found that a proper understanding of the basic method,
and the reasoning for it, assists greatly in working out what to do on the more
complex calculations.
Rate of Return
The rate of return is just the assumed rate of interest that C will be able to earn on the award – it is currently fixed at 2.5%
(which is entirely unrealistic but that is what we are stuck with).
Basic Calculation 1: Loss
for Life
The tables are Tables 1 (males) and 2 (females).
Our claimant is a 32 year old female. She requires care for life. I will assume
for now that the annual figure is fixed and will not increase. (NB this applies only to continuing loss. Lump sum losses,
suffered at a fixed point, will be dealt with later, as will varying losses)
So, table 2 (females) is where we start. C is 32, so we look
down the left column to age 32. The rate of return is fixed at 2.5% so that is
the column.
Where that line and column meet is our multiplier: 30.15.
Why?
The 30.15 figure takes into account the interest C will earn
on the capital sum (as the sum reduces each year when it is used). The sum also
takes into account the Claimant’s likely life expectancy.
By way of demonstration, the 0% rate of return column
assumes no interest will be earned above inflation, and so takes account only
of life expectancy. The figure there is 57.86, suggesting a life expectancy for
our client of around 89.
Basic Calculation 2: Loss
to retirement age
The appropriate tables are 3-14. The table depends on the
retirement age, because that is the end point of the loss (whereas there is
only one table for each gender for lifetime losses, as there is only one end
point).
The first thing we need to know is our client’s retirement
age. That is often confused with State Pension Age. The two are not the same so
the Claimant’s expected retirement date should be confirmed.
Let’s assume C‘s retirement age is 65: We turn to table 10
(females, retirement age 65).
The column is 2.5% (as above). Row 32 produces a multiplier
of 22.22. However – that only takes account of the mortality risk.
Risks other than mortality
We must also account for other risks relevant to loss of
earnings which may befall the Claimant before retirement. To do this we reduce
the multiplier by a factor, obtained from Tables A-D.
These tables are based on statistics, so we need to know a
little more about our claimant before we know what the assumed risks are for
her. We need to know:
-whether she is employed or
unemployed (at the time of the accident). She was employed.
-Whether she is disabled or not
(with detailed definition in the Ogden Tables). She is not.
-The level of her educational
attainment. (in three broad categories). Degree (Category D)
Table C is for non-disabled females. The claimant is in the
30-34 bracket, and employed, so the appropriate discount factor is the first
figure, 0.89. (N.B. the retirement age in the table is 65 and the notes indicate that any difference between this and the Claimant's own retirement age should be ignored.)
So, our multiplier from table 10 (above) was 22.22, only considering mortality. That is
multiplied by 0.89, and is accordingly reduced to take account of the
additional risks to retirement age.
22.22 x 0.89 = 19.76
So if the claimant's annual earnings were £25,000 per annum (net) the lump sum award is:
£25,000 x 19.76 = £494,000
Loss of pension
The same principles apply to loss of pension calculations.
The tables (15-26) provide multipliers for annual losses to pensions, from
various retirement ages, taking into account the likely life expectancy (and
therefore period of loss) from the date of retirement. The extent of the annual loss is the multiplicand.
