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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 four 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. A fifth methodology paper will be published shortly. This will describe the most recent review resulting in a reduction of the long term nominal rate and inflation rate. 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 January 2019 for Accounting Valuation Purposes

Following a review of the long term assumptions, the nominal long term rate has decreased from 5.50% to 4.75% and the long term inflation rate has decreased from 2.50% to 2.00%. These changes were effective from 30 June 2016.

The following table shows the risk-free rates to be used for certain accounting valuations as at 31 January 2019. Note that a history of these rates, starting with the 30 June 2010 rates, is available in the Excel spreadsheets below.

Table of Risk-free Discount Rates at 31 January 2019
for Accounting Valuation Purposes
Valuation Year
(for Annual Cash Flows to 31 January)
Duration
in Years
Forward Rate Spot Rate
2020 1 1.72% 1.72%
2021 2 1.65% 1.68%
2022 3 1.70% 1.69%
2023 4 1.91% 1.74%
2024 5 2.17% 1.83%
2025 6 2.40% 1.92%
2026 7 2.59% 2.02%
2027 8 2.75% 2.11%
2028 9 2.88% 2.20%
2029 10 2.97% 2.27%
2030 11 3.05% 2.34%
2031 12 3.12% 2.41%
2032 13 3.18% 2.47%
2033 14 3.24% 2.52%
2034 15 3.29% 2.57%
2035 16 3.32% 2.62%
2036 17 3.36% 2.66%
2037 18 3.38% 2.70%
2038 19 3.41% 2.74%
2039 20 3.46% 2.78%
2040 21 3.51% 2.81%
2041 22 3.56% 2.84%
2042 23 3.61% 2.88%
2043 24 3.66% 2.91%
2044 25 3.71% 2.94%
2045 26 3.76% 2.97%
2046 27 3.81% 3.00%
2047 28 3.86% 3.03%
2048 29 3.91% 3.06%
2049 30 3.96% 3.09%
2050 31 4.01% 3.12%
2051 32 4.06% 3.15%
2052 33 4.11% 3.18%
2053 34 4.16% 3.21%
2054 35 4.21% 3.24%
2055 36 4.26% 3.27%
2056 37 4.31% 3.30%
2057 38 4.36% 3.32%
2058 39 4.41% 3.35%
2059 40 4.46% 3.38%
2060 41 4.51% 3.41%
2061 42 4.56% 3.43%
2062 43 4.61% 3.46%
2063 44 4.66% 3.49%
2064 45 4.71% 3.51%
2065 46 4.75% 3.54%
2066 47 4.75% 3.57%
2067 48 4.75% 3.59%
2068 49 4.75% 3.61%
2069 50 4.75% 3.64%
2070 51 4.75% 3.66%
2071 52 4.75% 3.68%
2072 53 4.75% 3.70%
2073 54 4.75% 3.72%
2074 55 4.75% 3.74%
2075 56 4.75% 3.76%
2076 plus 57 + 4.75% 3.77%

The following table shows the CPI assumption rates to be used for certain accounting valuations as at 31 January 2019.

Table of CPI Assumptions at 31 January 2019
for Accounting Valuation Purposes
Valuation Year
(for Annual Cash Flows to 31 January)
Year CPI
(for 31 January Years)
2020 1 1.52%
2021 2 1.52%
2022 3 1.52%
2023 4 1.52%
2024 5 1.52%
2025 6 1.52%
2026 7 1.52%
2027 8 1.52%
2028 9 1.52%
2029 10 1.52%
2030 11 1.52%
2031 12 1.52%
2032 13 1.52%
2033 14 1.52%
2034 15 1.52%
2035 16 1.52%
2036 17 1.52%
2037 18 1.52%
2038 19 1.53%
2039 20 1.54%
2040 21 1.56%
2041 22 1.58%
2042 23 1.60%
2043 24 1.61%
2044 25 1.63%
2045 26 1.65%
2046 27 1.67%
2047 28 1.69%
2048 29 1.70%
2049 30 1.72%
2050 31 1.74%
2051 32 1.76%
2052 33 1.77%
2053 34 1.79%
2054 35 1.81%
2055 36 1.83%
2056 37 1.84%
2057 38 1.86%
2058 39 1.88%
2059 40 1.90%
2060 41 1.91%
2061 42 1.93%
2062 43 1.95%
2063 44 1.97%
2064 45 1.98%
2065 46 2.00%
2066 47 2.00%
2067 48 2.00%
2068 49 2.00%
2069 50 2.00%
2070 51 2.00%
2071 52 2.00%
2072 53 2.00%
2073 54 2.00%
2074 55 2.00%
2075 56 2.00%
2076 plus 57 + 2.00%

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 January 2019 is the risk-free rate to match the cash flow for the period 1 February 2019 to 31 January 2020.

Auditor Confirmation as at 30 June 2018

The Office of the Auditor-General considers the table of risk-free discount rates and CPI assumptions as at 30 June 2018 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 13 June 2016 updated to reflect market data as at 30 June 2018). 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 2018.  For example, if you know the duration of cash flows at 30 June 2018 is on average 10 years, you could use the 10 year spot rate of 2.85% 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 2018

The following risk-free discount rates are applicable to be used in the Treasury models issued under TC 2009/06 for 30 June 2018 valuations:

  • 1 year: 1.78%
  • 2 year: 1.90%
  • 3 year plus: 3.55%*

The Treasury Excel models also require a long-term salary inflation assumption of 3.1%**

  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 2018.
  2. ** This rate is based on using a 1.7% medium term inflation assumption plus 1.4% 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

Mark McLellan | Fiscal Reporting, The Treasury
Tel: +64 4 890 7230
Email: mark.mclellan@treasury.govt.nz

Jayne Winfield | Fiscal Reporting, The Treasury
Tel: +64 4 890 7205
Email: jayne.winfield@treasury.govt.nz

Last updated: 
Monday, 4 February 2019