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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 2018 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 2018. 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 2018
for Accounting Valuation Purposes
Valuation Year
(for Annual Cash Flows
to 31 January)
Duration
in Years
Forward
Rate
Spot
Rate
2019 1 1.79% 1.79%
2020 2 2.02% 1.91%
2021 3 2.42% 2.08%
2022 4 2.80% 2.26%
2023 5 3.12% 2.43%
2024 6 3.39% 2.59%
2025 7 3.60% 2.73%
2026 8 3.76% 2.86%
2027 9 3.86% 2.97%
2028 10 3.91% 3.06%
2029 11 3.95% 3.14%
2030 12 3.99% 3.21%
2031 13 4.02% 3.28%
2032 14 4.05% 3.33%
2033 15 4.08% 3.38%
2034 16 4.11% 3.43%
2035 17 4.13% 3.47%
2036 18 4.16% 3.51%
2037 19 4.17% 3.54%
2038 20 4.20% 3.57%
2039 21 4.25% 3.61%
2040 22 4.30% 3.64%
2041 23 4.35% 3.67%
2042 24 4.40% 3.70%
2043 25 4.45% 3.73%
2044 26 4.50% 3.76%
2045 27 4.55% 3.79%
2046 28 4.60% 3.82%
2047 29 4.65% 3.85%
2048 30 4.70% 3.87%
2049 31 4.75% 3.90%
2050 32 4.75% 3.93%
2051 33 4.75% 3.95%
2052 34 4.75% 3.98%
2053 35 4.75% 4.00%
2054 36 4.75% 4.02%
2055 37 4.75% 4.04%
2056 38 4.75% 4.06%
2057 39 4.75% 4.08%
2058 40 4.75% 4.09%
2059 41 4.75% 4.11%
2060 42 4.75% 4.12%
2061 43 4.75% 4.14%
2062 44 4.75% 4.15%
2063 45 4.75% 4.17%
2064 46 4.75% 4.18%
2065 47 4.75% 4.19%
2066 48 4.75% 4.20%
2067 49 4.75% 4.21%
2068 50 4.75% 4.22%
2069 51 4.75% 4.23%
2070 52 4.75% 4.24%
2071 53 4.75% 4.25%
2072 54 4.75% 4.26%
2073 55 4.75% 4.27%
2074 56 4.75% 4.28%
2075 plus 57+ 4.75% 4.29%

The following table shows the CPI assumption rates to be used for certain accounting valuations as at 31 January 2018.

Table of CPI Assumptions at 31 January 2018
for Accounting Valuation Purposes
Valuation Year
(for Annual Cash Flows
to 31 January)
Year CPI
(for 31 January
Years)
2019 1 1.77%
2020 2 1.77%
2021 3 1.77%
2022 4 1.77%
2023 5 1.77%
2024 6 1.77%
2025 7 1.77%
2026 8 1.77%
2027 9 1.77%
2028 10 1.77%
2029 11 1.77%
2030 12 1.77%
2031 13 1.77%
2032 14 1.77%
2033 15 1.77%
2034 16 1.77%
2035 17 1.77%
2036 18 1.77%
2037 19 1.77%
2038 20 1.78%
2039 21 1.80%
2040 22 1.82%
2041 23 1.84%
2042 24 1.86%
2043 25 1.88%
2044 26 1.90%
2045 27 1.92%
2046 28 1.94%
2047 29 1.96%
2048 30 1.98%
2049 31 2.00%
2050 32 2.00%
2051 33 2.00%
2052 34 2.00%
2053 35 2.00%
2054 36 2.00%
2055 37 2.00%
2056 38 2.00%
2057 39 2.00%
2058 40 2.00%
2059 41 2.00%
2060 42 2.00%
2061 43 2.00%
2062 44 2.00%
2063 45 2.00%
2064 46 2.00%
2065 47 2.00%
2066 48 2.00%
2067 49 2.00%
2068 50 2.00%
2069 51 2.00%
2070 52 2.00%
2071 53 2.00%
2072 54 2.00%
2073 55 2.00%
2074 56 2.00%
2075 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 December 2017 is the risk-free rate to match the cash flow for the period 1 January 2018 to 31 December 2018.

Auditor Confirmation as at 30 June 2017

The Office of the Auditor-General considers the table of risk-free discount rates and CPI assumptions as at 30 June 2017 have been determined in accordance with the associated methodology. 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 2017.  For example, if you know the duration of cash flows at 30 June 2017 is on average 10 years, you could use the 10 year spot rate of 3.09% 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 2017

The following risk-free discount rates are applicable to be used in the Treasury models issued under TC 2009/06 for 30 June 2017 valuations:

  • 1 year: 1.97%
  • 2 year: 2.36%
  • 3 year plus: 3.92%*

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

  • *  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 2017.
  • ** 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

Last updated: 
Friday, 6 April 2018