Discount Rates and CPI Assumptions for Accounting Valuation Purposes
Page updated 8 Jan 2013
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 NZ IFRS 4 Insurance Contracts
- valuing employee benefits such as pension obligations, long service leave and retiring leave under NZ IAS 19 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 two papers; the original methodology dated July 2010 and a subsequent paper dated May 2012. The May 2012 paper documents a review of the long-term assumptions in the Methodology.
The Treasury will publish here risk-free discount rates as at 30 June, 30 September, 31 December, 28 February 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 December 2012 for Accounting Valuation Purposes
The following table shows the risk-free rates to be used for certain accounting valuations as at 31 December 2012. Note that a history of these rates, starting with the 30 June 2010 rates, is available in the Excel spreadsheet in the Documents table below.
| Valuation Year (for Annual Cash Flows to 31 December) |
Duration in Years |
Forward Rate | Spot Rate |
|---|---|---|---|
| 2013 | 1 | 2.48% | 2.48% |
| 2014 | 2 | 2.56% | 2.52% |
| 2015 | 3 | 2.86% | 2.63% |
| 2016 | 4 | 3.29% | 2.80% |
| 2017 | 5 | 3.67% | 2.97% |
| 2018 | 6 | 3.99% | 3.14% |
| 2019 | 7 | 4.24% | 3.30% |
| 2020 | 8 | 4.40% | 3.43% |
| 2021 | 9 | 4.49% | 3.55% |
| 2022 | 10 | 4.50% | 3.65% |
| 2023 | 11 | 4.55% | 3.73% |
| 2024 | 12 | 4.69% | 3.81% |
| 2025 | 13 | 4.84% | 3.89% |
| 2026 | 14 | 4.99% | 3.97% |
| 2027 | 15 | 5.14% | 4.04% |
| 2028 | 16 | 5.29% | 4.12% |
| 2029 | 17 | 5.44% | 4.20% |
| 2030 | 18 | 5.59% | 4.28% |
| 2031 | 19 | 5.74% | 4.35% |
| 2032 | 20 | 5.89% | 4.43% |
| 2033 | 21 | 6.00% | 4.50% |
| 2034 | 22 | 6.00% | 4.57% |
| 2035 | 23 | 6.00% | 4.63% |
| 2036 | 24 | 6.00% | 4.69% |
| 2037 | 25 | 6.00% | 4.74% |
| 2038 | 26 | 6.00% | 4.79% |
| 2039 | 27 | 6.00% | 4.83% |
| 2040 | 28 | 6.00% | 4.88% |
| 2041 | 29 | 6.00% | 4.91% |
| 2042 | 30 | 6.00% | 4.95% |
| 2043 plus | 31+ | 6.00% |
The following table shows the CPI assumption rates to be used for certain accounting valuations as at 31 December 2012.
| Valuation Year (for Annual Cash Flows to 31 March) |
Year | CPI (for 31 March Years) |
|---|---|---|
| 2013 | 1 | 2.10% |
| 2014 | 2 | 2.40% |
| 2015 | 3 | 2.50% |
| 2016 | 4 | 2.50% |
| 2017 | 5 | 2.50% |
| 2018 | 6 | 2.50% |
| 2019 | 7 | 2.50% |
| 2020 | 8 | 2.50% |
| 2021 | 9 | 2.50% |
| 2022 plus | 10+ | 2.50% |
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 March 2012 is the risk-free rate to match the cash flow for the period 1 April 2012 to 31 March 2013.
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.
30 June 2012
The following risk-free discount rates are applicable to be used in the Treasury models issued under TC 2009/06 for June 2012 valuations:
- 1 year: 2.43%
- 2 year: 2.47%
- 3 year plus: 6.00%
- * This rate is based on using a 2.5% long term inflation assumption plus 1% 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.
Documents
| Doc. Date | Title | Download |
|---|---|---|
| 8 Jan 2013 | Table of Risk-free Discount Rates and CPI Assumptions as at 31 December 2012 for Accounting Valuation Purposes and History Includes monthly rates at 31 December 2012 and worksheets for each previous table of rates starting at 30 June 2010. |
disc-rates-dec12.xls (456 KB) |
| 7 Jul 2010 | Table of Risk-free Discount Rates and CPI Assumptions at 30 June 2010 for Accounting Valuation Purposes | disc-rates-jul10.pdf (8 KB) |
| 7 Jul 2010 | Treasury Circular 2010/08: 30 June 2010 Year End Discount Rates and Contingent Liabilities and Assets | tc-2010-08.pdf (94 KB) |
| 15 Jun 2009 | Treasury Circular 2009/06: Calculating Long Service Leave Liabilities for Crown Reporting Entities | tc-2009-06.pdf (91 KB) |
| Associated Methodology | ||
| 6 Jul 2012 | Methodology for Risk-free Discount Rates and CPI Assumptions for Accounting Valuation Purposes - May 2012 Review of Long-term Assumptions | |
| Jul 2010 | Methodology for Risk-free Discount Rates and CPI Assumptions for Accounting Valuation Purposes (Original) | |
