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Discount Rates and CPI Assumptions for Accounting Valuation Purposes

The Treasury publishes here a table of risk-free discount rates and consumer price index (CPI) assumptions that must be used in certain accounting valuations for the purpose of preparing the Financial Statements of the Government of New Zealand.

This table of rates applies to all Government reporting entities submitting valuations to Treasury for:

  • valuing insurance claims liabilities under PBE IFRS 4 Insurance Contracts
  • valuing employee benefits such as pension obligations, long service leave and retiring leave under PBE IPSAS 25 Employee Benefits, and
  • building a risk-adjusted discount rate for valuing student loans.

These rates may be applied to other valuations where a risk-free discount rate or CPI assumption is used. In these cases the rates may either be used unadjusted, or as a building block to calculate another assumption at your discretion.

In addition to the table, the Treasury has published the associated Methodology which comprises five papers (see below); the original methodology dated July 2010 and three subsequent papers dated May 2012, June 2013 and December 2015. The December 2015 paper documents a change in the way the short-term CPI assumption is determined under the Methodology. The July 2019 paper describes the most recent review resulting in a reduction of the long term nominal rate and a change in the way the short to medium CPI assumption is determined. For further details refer to the associated Methodology section below.

The Treasury will publish here risk-free discount rates as at 30 June, 30 September, 31 December, 31 January and 31 May. These rates will be published within one week of the "as at" date.

Tables of Risk-free Discount Rates and CPI Assumptions at 31 May 2020 for Accounting Valuation Purposes

Following a review of the long term assumptions in May 2019, the nominal long term rate has decreased from 4.75% to 4.30%. At the same time there was also a change to the way the short to medium term CPI assumption is determined. An adjustment of 0.3% has now been added to the market prices of inflation-indexed Government bonds used to calculate the breakeven inflation assumption to allow for the relative illiquidity of inflation-indexed government bonds compared to nominal government bonds. However, no change was made to the 50% weighting given to the breakeven inflation and the 50% weighting given inflation forecasts. These changes were effective from 31 May 2019.

The following table shows the risk-free rates to be used for certain accounting valuations as at 31 May 2020. Note that a history of these rates, starting with the 30 September 2010 rates, is available in the Excel spreadsheets below.

Table of Risk-free Discount Rates at 31 May 2020 
for Accounting Valuation Purpose
Valuation Year
(for Annual Cash Flows to 31 May)
Duration
in Years
Forward Rate Spot Rate
2021 1 0.16% 0.16%
2022 2 0.13% 0.14%
2023 3 0.33% 0.21%
2024 4 0.55% 0.29%
2025 5 0.75% 0.38%
2026 6 0.93% 0.47%
2027 7 1.09% 0.56%
2028 8 1.24% 0.65%
2029 9 1.36% 0.73%
2030 10 1.47% 0.80%
2031 11 1.56% 0.87%
2032 12 1.63% 0.93%
2033 13 1.68% 0.99%
2034 14 1.73% 1.04%
2035 15 1.76% 1.09%
2036 16 1.78% 1.13%
2037 17 1.79% 1.17%
2038 18 1.82% 1.21%
2039 19 1.87% 1.24%
2040 20 1.92% 1.28%
2041 21 1.97% 1.31%
2042 22 2.02% 1.34%
2043 23 2.07% 1.37%
2044 24 2.12% 1.40%
2045 25 2.17% 1.43%
2046 26 2.22% 1.46%
2047 27 2.27% 1.49%
2048 28 2.32% 1.52%
2049 29 2.37% 1.55%
2050 30 2.42% 1.58%
2051 31 2.47% 1.61%
2052 32 2.52% 1.64%
2053 33 2.57% 1.67%
2054 34 2.62% 1.69%
2055 35 2.67% 1.72%
2056 36 2.72% 1.75%
2057 37 2.77% 1.78%
2058 38 2.82% 1.80%
2059 39 2.87% 1.83%
2060 40 2.92% 1.86%
2061 41 2.97% 1.89%
2062 42 3.02% 1.91%
2063 43 3.07% 1.94%
2064 44 3.12% 1.97%
2065 45 3.17% 1.99%
2066 46 3.22% 2.02%
2067 47 3.27% 2.05%
2068 48 3.32% 2.07%
2069 49 3.37% 2.10%
2070 50 3.42% 2.12%
2071 51 3.47% 2.15%
2072 52 3.52% 2.18%
2073 53 3.57% 2.20%
2074 54 3.62% 2.23%
2075 55 3.67% 2.26%
2076 56 3.72% 2.28%
2077 57 3.77% 2.31%
2078 58 3.82% 2.33%
2079 59 3.87% 2.36%
2080 60 3.92% 2.38%
2081 61 3.97% 2.41%
2082 62 4.02% 2.44%
2083 63 4.07% 2.46%
2084 64 4.12% 2.49%
2085 65 4.17% 2.51%
2086 66 4.22% 2.54%
2087 67 4.27% 2.56%
2088 68 4.30% 2.59%
2089 69 4.30% 2.61%
2090 70 4.30% 2.64%
2091 71 4.30% 2.66%
2092 72 4.30% 2.68%
2093 73 4.30% 2.71%
2094 74 4.30% 2.73%
2095 75 4.30% 2.75%
2096 76 4.30% 2.77%
2097 77 4.30% 2.79%
2098 78 4.30% 2.81%
2099 79 4.30% 2.83%
2100 80 plus 4.30% 2.84%

The following table shows the CPI assumption rates to be used for certain accounting valuations as at 31 May 2020.

Table of CPI Assumptions at 31 May 2020
for Accounting Valuation Purposes
Valuation Year
(for Annual Cash Flows to 31 May)
Year Forward CPI
(for 31 May Years)
Spot CPI
(for 31 May Years)
2021 1 1.62% 1.62%
2022 2 1.62% 1.62%
2023 3 1.62% 1.62%
2024 4 1.62% 1.62%
2025 5 1.62% 1.62%
2026 6 1.62% 1.62%
2027 7 1.62% 1.62%
2028 8 1.62% 1.62%
2029 9 1.62% 1.62%
2030 10 1.62% 1.62%
2031 11 1.62% 1.62%
2032 12 1.62% 1.62%
2033 13 1.62% 1.62%
2034 14 1.62% 1.62%
2035 15 1.62% 1.62%
2036 16 1.62% 1.62%
2037 17 1.62% 1.62%
2038 18 1.63% 1.62%
2039 19 1.63% 1.62%
2040 20 1.64% 1.62%
2041 21 1.65% 1.62%
2042 22 1.66% 1.62%
2043 23 1.66% 1.63%
2044 24 1.67% 1.63%
2045 25 1.68% 1.63%
2046 26 1.69% 1.63%
2047 27 1.69% 1.63%
2048 28 1.70% 1.64%
2049 29 1.71% 1.64%
2050 30 1.72% 1.64%
2051 31 1.72% 1.64%
2052 32 1.73% 1.65%
2053 33 1.74% 1.65%
2054 34 1.75% 1.65%
2055 35 1.75% 1.66%
2056 36 1.76% 1.66%
2057 37 1.77% 1.66%
2058 38 1.78% 1.66%
2059 39 1.78% 1.67%
2060 40 1.79% 1.67%
2061 41 1.80% 1.67%
2062 42 1.81% 1.68%
2063 43 1.81% 1.68%
2064 44 1.82% 1.68%
2065 45 1.83% 1.69%
2066 46 1.84% 1.69%
2067 47 1.84% 1.69%
2068 48 1.85% 1.70%
2069 49 1.86% 1.70%
2070 50 1.87% 1.70%
2071 51 1.87% 1.71%
2072 52 1.88% 1.71%
2073 53 1.89% 1.71%
2074 54 1.90% 1.72%
2075 55 1.90% 1.72%
2076 56 1.91% 1.72%
2077 57 1.92% 1.73%
2078 58 1.93% 1.73%
2079 59 1.93% 1.73%
2080 60 1.94% 1.74%
2081 61 1.95% 1.74%
2082 62 1.96% 1.74%
2083 63 1.97% 1.75%
2084 64 1.97% 1.75%
2085 65 1.98% 1.75%
2086 66 1.99% 1.76%
2087 67 2.00% 1.76%
2088 68 2.00% 1.77%
2089 69 2.00% 1.77%
2090 70 2.00% 1.77%
2091 71 2.00% 1.78%
2092 72 2.00% 1.78%
2093 73 2.00% 1.78%
2094 74 2.00% 1.78%
2095 75 2.00% 1.79%
2096 76 2.00% 1.79%
2097 77 2.00% 1.79%
2098 78 2.00% 1.80%
2099 79 2.00% 1.80%
2100 80 plus 2.00% 1.80%

Using the Treasury Risk-free Discount Rates

Valuation models will use either forward or spot rates. Both of these rates have been provided.

Ideally, forward rates should be used for the accounting valuations. However, the ability to use forward rates will be dependent on the type of valuation programme or model used. The programme or model must be able to cope with different discount rates for each year in order to use forward rates.

If the programme or model only requires a single discount rate then select the spot rate that matches the duration of cash flows. For example, if the duration of cash flows is eight years, and the model requires a single rate, select the Year 8 spot rate from the table.

The annual forward and spot rates provided are to match annual cash flows from the "as at" date the rates are published. For example the 1 year rate published at 31 May 2020 is the risk-free rate to match the cash flow for the period 1 June 2020 to 31 May 2021.

Auditor Confirmation as at 30 June 2019

The Office of the Auditor-General considers the table of risk-free discount rates and CPI assumptions as at 30 June 2019 have been determined in accordance with the associated methodology document (The Treasury Risk-free Discount Rates and CPI: Assumptions for Accounting and Valuation Purposes dated 1 July 2019). The rates and CPI assumptions are appropriate to use:

  • In valuing insurance claims liabilities under PBE IFRS 4 Insurance Contracts.
  • In valuing employee benefits such as pension obligations, long service leave, and retiring leave under PBE IPSAS 25 Employee Benefits.
  • In building a risk-adjusted discount rate to value student loans.

The Treasury's Long Service Leave and Retiring Leave Models (per TC 2009/06)

If you use the Treasury Excel models to calculate long service leave and retiring leave obligations (per Treasury Circular 2009/06 below), only three risk-free discount rates can be used.  This allows for the use of three forward rates.  These three forward rates are published below.

However, if you know the average duration of future cash flows being valued, you can choose the single spot rate for that year from the table of discount rates as at 30 June 2019. For example, if you know the duration of cash flows at 30 June 2019 is on average 10 years, you could use the 10 year spot rate of 1.60% from the published table of rates and enter it as all three discount rate assumptions in the model.

While the Treasury provides economic assumptions here, the model can be run using different discount rates and salary assumptions to assess how sensitive the valuation is to a change in the Treasury assumptions.  For example you could run the model using a rate that is plus or minus 1% from the Treasury rate. This can provide assurances around year end valuations and enable you to disclose sensitivity impacts.

30 June 2019

The following risk-free discount rates are applicable to be used in the Treasury models issued under TC 2009/06 for 30 June 2019 valuations:

  • 1 year: 1.26%
  • 2 year: 1.03%
  • 3 year plus: 2.23%*

The Treasury Excel models also require a long-term salary inflation assumption of 2.92%**

  1. *  This rate is based on the average of 20 forward rates (from year 3 to 22 inclusive) taken from the published table of discount rates as at 30 June 2019.
  2. ** This rate is based on using a 1.72% medium term inflation assumption plus 1.2% for long term labour productivity growth for the public sector. On average over the longer term we would expect that nominal wages and salaries would grow approximately in line with inflation and the rate of labour productivity growth.

Contact for Enquiries

Tereza Bublikova | Fiscal Reporting, The Treasury
Tel: +64 4 831 6535
Email: tereza.bublikova@treasury.govt.nz

Angela Ryan | Fiscal Reporting, The Treasury
Tel: +64 4 917 6102
Email: angela.ryan@treasury.govt.nz

Last updated: 
Thursday, 4 June 2020