In our role of assisting personal injury lawyers with damages quantification and expert reports, we need to know what is acceptable methodology to the Courts. As an actuary, I would normally like to model outcomes as realistically as possible with provision for inflation and expected returns. Often the methodology required by the Court is no inflation and a lower “real rate of return”. In many instances, it will produce broadly the same outcome – but not for the quantification of fund management damages, it produces the wrong shape to the portfolio rundown and (hence) an inaccurate estimate of the present value of fees associated with the investment of personal injury settlements.
A recent judgement may result in less need to undertake these calculations.
I understand that the High Court confirmed in the Gray-v-Richards  HCA 40 matter on appeal from the NSW Court of Appeal that a plaintiff is entitled to damages for funds management expenses where the incapacity to manage funds arises from the negligence of the defendant. If the injury suffered had no impact on the plaintiff’s intellectual abilities, no damages for funds management expenses would be awarded.
The High Court judgement has provided guidance on the actuarial calculation to the quantification of funds management costs as a head of damages. The High Court considered that to award fund management expenses on predicted income involves an assumption that damages would be invested to generate income. This (the High Court found) would be inconsistent with the Todorovic-v-Waller principle that a person may do what they wish with any award of damages they receive. The reasonability of the amount claimed needs costs compared to the public trustee (besides other organisations).
From a financial planning perspective, there are advantages to holding the monies in a superannuation fund. Personal injury settlements are excluded from the non-concessional contribution cap provided certain conditions are met. There is no limit on the amount of the personal injury contributions that can be made to the fund. Of course, one would have to ensure that the incapacity provisions are met to have a “condition of release” to pay the monies out as an income stream. It is very tax efficient.
It is a core part of NetActuary’s services to assist lawyers with family law, tort, testamentary and other matters.
The NetActuary Team