Future losses and discount multipliers
Question: If you are 50 years of age, worked full-time as a plumber, and suffered an injury which prevents you from ever working again, how would you calculate your future lost wages?
Suppose you earned $900.00 per week after tax.
You have 17 years before you reach retirement age (67).
Does this mean the calculation is $900 x 17 years x 52 weeks = $795,600.00?
Unfortunately, the answer is no.
The 5% discount multiplier
In New South Wales, all compensation which is meant for the future, must be heavily discounted because you are getting the money now, according to the law.
The discount that applies is called the “5% discount multiplier”
The rationale for the 5% discount multiplier is that if you were paid a lump sum now, you could put it into an account which earned you interest of 5% per annum. If you withdraw $900 per week for the next 17 years, in the last week before you turned 67, there would be only $900 left.
This may seem unfair, but you get the benefit of receiving a large sum of money up to 17 years before you ordinarily would have, so that’s a benefit in itself.
The 5% multiplier is calculated for every 0.5 years and published by a number of organisations who specialise in calculations of this sort.
The 5% multiplier for 17 years is ‘602.8′.
That means you calculate your future compensation by multiplying what you’ve lost each week by the multiplier.
Using the example above, the calculation would be $900 x 602.8 = $542,520.00 – which is about $250,000.00 less than what you may have expected to receive!
Special discount for future loss of income
If the calculation is for loss of income, the law says that you must also take off a further 15% for the “vicissitudes of life”, which is an expression that means you might have another misfortune that will prevent you from working anyway.
That would further reduce the above sum to $461,142.00.
Is this always how loss of income is calculated?
Not always. In most cases it’s too hard to do an accurate mathematical calculation about what amount of money you could lose in the future. In those circumstances, you will receive what is known as a “buffer” or a “cushion”, which is calculated very differently.
Also, just because you can no longer work as a plumber (as in the above example), doesn’t mean you can’t work part-time or casually in a less physically demanding job. Calculating loss of income is very difficult and you should speak to your solicitor to get advice about your own personal circumstances.
Are these the only discounts that apply to compensation?
No. Compensation can be discounted for many reasons depending upon the particular circumstances of your case. Your compensation expert at Stacks Goudkamp will be able to advise you about any and all discounts which could potentially apply to your compensation.
What should I do if I have been injured due to someone else’s actions, and I think I might lose income in the future?
You should contact Stacks Goudkamp on 1800 25 1800 or make an online enquiry, for obligation free advice about your circumstances from one of our compensation specialists.
Written by Brett Watts.
Brett Watts is an Associate in Tom Goudkamp and Ruth Hudson’s Practice Group. Brett represents people who have been injured in a variety of accidents including motor vehicle claims and public liability claims.