What is loss of income?
When someone is injured in an accident, they may earn less than they would have earned if the accident had never happened. The difference between what they would have earned (the "uninjured" scenario) and what they can now earn (the "injured" scenario) is their loss of income. This loss has two parts: past loss (from the date of accident to the date of calculation) and future loss (from the date of calculation to expected retirement).
Step 1: Establish the earnings
You need two numbers: the claimant's uninjured monthly gross income (what they would have earned) and their injured monthly gross income (what they can now earn, if anything). These figures usually come from employment records, payslips, or an industrial psychologist's report.
Retirement fund contributions matter too — not because they reduce the loss, but because they reduce taxable income. The claimant loses both their take-home pay and their retirement benefits, so the full gross amount forms the basis of the claim.
Step 2: Calculate past loss
Past loss is relatively straightforward. Count the months from the date of accident to the date of calculation. For each month, the loss is:
Net income means gross income minus tax. Tax is calculated using the SARS annual tax tables at the relevant income level. Past loss is not discounted — it has already been suffered. However, contingency deductions are usually applied to reflect the chance that the claimant might not have worked every month even without the accident (illness, retrenchment, etc.).
Step 3: Calculate future loss
Future loss is where the actuary earns their fee. The claimant will lose income every month from now until they would have retired. But you can't simply multiply the monthly loss by the number of remaining months — you need to account for three things:
- Mortality — the claimant might not survive to retirement. Actuaries use Koch life tables to adjust for this probability.
- Discounting — a rand received today is worth more than a rand received in 10 years. Future amounts are discounted back to present value, typically at a rate of around 8.65% per annum.
- Earnings growth — salaries tend to grow over time with inflation. The net discount rate accounts for this by adjusting the gross discount rate downward. For example, with 8.65% discounting and 6% earnings growth, the effective (net) discount rate is about 2.5%.
These three factors are combined into a single number called the life annuity factor. Multiply the monthly net loss by this factor to get the capitalised future loss.
Step 4: Apply contingencies
Contingency deductions reflect the uncertainties of life. Even without the accident, the claimant might have been retrenched, changed careers, or taken time off. Typical contingency deductions range from 5% to 15% for the uninjured scenario, and are applied separately to past and future loss. The injured scenario also gets its own contingency.
Step 5: Apply the RAF cap (if applicable)
For Road Accident Fund claims, the RAF Act caps the income that can be claimed at R351,516 per year (current threshold). If the claimant earned more than this, the uninjured earnings are capped at the threshold amount. This can significantly reduce the quantum.
Putting it together
The total loss of income is:
If apportionment applies (e.g. the claimant was partly at fault), a further percentage reduction is applied to the total.
Want to run the numbers yourself? Try the WikiQuantum calculator — it handles all of the above in seconds.