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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 six papers (see below); the original methodology dated July 2010 and five subsequent papers dated May 2012, June 2013, December 2015, July 2019 and July 2020. The December 2015 paper documents a change in the way the short-term CPI assumption is determined under the Methodology. The July 2019 review resulting in a reduction of the long term nominal rate to 4.30% (from 4.75%) and a change in the way the short to medium CPI assumption is determined. In July 2020, a limited scope review concluded that the Methodology continues to be fit for purpose following the impacts of COVID-19 on the markets and economy.  For further details refer to the associated Methodology section below.

The risk-free discount rate methodology uses at its starting point the market yield curve of New Zealand Government Bonds as the most appropriate proxy for the return on a very safe asset.

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 2021 for Accounting Valuation Purposes

The following table shows the risk-free rates to be used for certain accounting valuations as at 31 January 2021. 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 January 2021 
for Accounting Valuation Purpose
Valuation Year
(for Annual Cash Flows to 31 Jan)
Duration
in Years
Forward
Rate
Spot
Rate
2022 1 0.21% 0.21%
2023 2 0.25% 0.23%
2024 3 0.40% 0.29%
2025 4 0.67% 0.38%
2026 5 0.99% 0.50%
2027 6 1.29% 0.63%
2028 7 1.57% 0.77%
2029 8 1.82% 0.90%
2030 9 2.05% 1.03%
2031 10 2.25% 1.15%
2032 11 2.44% 1.26%
2033 12 2.61% 1.38%
2034 13 2.76% 1.48%
2035 14 2.90% 1.58%
2036 15 3.02% 1.68%
2037 16 3.13% 1.77%
2038 17 3.22% 1.85%
2039 18 3.30% 1.93%
2040 19 3.36% 2.01%
2041 20 3.41% 2.08%
2042 21 3.45% 2.14%
2043 22 3.50% 2.20%
2044 23 3.54% 2.26%
2045 24 3.59% 2.32%
2046 25 3.64% 2.37%
2047 26 3.69% 2.42%
2048 27 3.74% 2.47%
2049 28 3.79% 2.51%
2050 29 3.84% 2.56%
2051 30 3.89% 2.60%
2052 31 3.94% 2.65%
2053 32 3.99% 2.69%
2054 33 4.04% 2.73%
2055 34 4.09% 2.77%
2056 35 4.14% 2.81%
2057 36 4.19% 2.85%
2058 37 4.24% 2.88%
2059 38 4.29% 2.92%
2060 39 4.30% 2.96%
2061 40 4.30% 2.99%
2062 41 4.30% 3.02%
2063 42 4.30% 3.05%
2064 43 4.30% 3.08%
2065 44 4.30% 3.11%
2066 45 4.30% 3.13%
2067 46 4.30% 3.16%
2068 47 4.30% 3.18%
2069 48 4.30% 3.21%
2070 49 4.30% 3.23%
2071 50 4.30% 3.25%
2072 51 4.30% 3.27%
2073 52 4.30% 3.29%
2074 53 4.30% 3.31%
2075 54 4.30% 3.33%
2076 55 4.30% 3.35%
2077 56 4.30% 3.36%
2078 57 4.30% 3.38%
2079 58 4.30% 3.39%
2080 59 4.30% 3.41%
2081 60 4.30% 3.42%
2082 61 4.30% 3.44%
2083 62 4.30% 3.45%
2084 63 4.30% 3.47%
2085 64 4.30% 3.48%
2086 65 4.30% 3.49%
2087 66 4.30% 3.50%
2088 67 4.30% 3.52%
2089 68 4.30% 3.53%
2090 69 4.30% 3.54%
2091 70 4.30% 3.55%
2092 71 4.30% 3.56%
2093 72 4.30% 3.57%
2094 73 4.30% 3.58%
2095 74 4.30% 3.59%
2096 75 4.30% 3.60%
2097 76 4.30% 3.61%
2098 77 4.30% 3.62%
2099 78 4.30% 3.63%
2100 79 4.30% 3.63%
2101 80 plus 4.30% 3.64%

The following table shows the CPI assumption rates to be used for certain accounting valuations as at 31 January 2021.

Table of CPI Assumptions at 31 January 2021
for Accounting Valuation Purposes
Valuation Year
(for Annual Cash Flows to 31 Jan)
Year Forward CPI
(for 31 Jan Years)
Spot CPI
(for 31 Jan Years)
2022 1 1.54% 1.54%
2023 2 1.79% 1.66%
2024 3 1.94% 1.76%
2025 4 1.99% 1.81%
2026 5 1.99% 1.85%
2027 6 1.99% 1.87%
2028 7 1.99% 1.89%
2029 8 1.99% 1.90%
2030 9 1.99% 1.91%
2031 10 1.99% 1.92%
2032 11 1.99% 1.93%
2033 12 1.99% 1.93%
2034 13 1.99% 1.94%
2035 14 1.99% 1.94%
2036 15 1.99% 1.94%
2037 16 1.99% 1.95%
2038 17 1.99% 1.95%
2039 18 1.99% 1.95%
2040 19 1.99% 1.95%
2041 20 1.99% 1.95%
2042 21 1.99% 1.96%
2043 22 1.99% 1.96%
2044 23 1.99% 1.96%
2045 24 1.99% 1.96%
2046 25 1.99% 1.96%
2047 26 1.99% 1.96%
2048 27 1.99% 1.96%
2049 28 1.99% 1.97%
2050 29 1.99% 1.97%
2051 30 2.00% 1.97%
2052 31 2.00% 1.97%
2053 32 2.00% 1.97%
2054 33 2.00% 1.97%
2055 34 2.00% 1.97%
2056 35 2.00% 1.97%
2057 36 2.00% 1.97%
2058 37 2.00% 1.97%
2059 38 2.00% 1.97%
2060 39 2.00% 1.97%
2061 40 2.00% 1.98%
2062 41 2.00% 1.98%
2063 42 2.00% 1.98%
2064 43 2.00% 1.98%
2065 44 2.00% 1.98%
2066 45 2.00% 1.98%
2067 46 2.00% 1.98%
2068 47 2.00% 1.98%
2069 48 2.00% 1.98%
2070 49 2.00% 1.98%
2071 50 2.00% 1.98%
2072 51 2.00% 1.98%
2073 52 2.00% 1.98%
2074 53 2.00% 1.98%
2075 54 2.00% 1.98%
2076 55 2.00% 1.98%
2077 56 2.00% 1.98%
2078 57 2.00% 1.98%
2079 58 2.00% 1.98%
2080 59 2.00% 1.98%
2081 60 2.00% 1.98%
2082 61 2.00% 1.98%
2083 62 2.00% 1.98%
2084 63 2.00% 1.98%
2085 64 2.00% 1.98%
2086 65 2.00% 1.98%
2087 66 2.00% 1.98%
2088 67 2.00% 1.99%
2089 68 2.00% 1.99%
2090 69 2.00% 1.99%
2091 70 2.00% 1.99%
2092 71 2.00% 1.99%
2093 72 2.00% 1.99%
2094 73 2.00% 1.99%
2095 74 2.00% 1.99%
2096 75 2.00% 1.99%
2097 76 2.00% 1.99%
2098 77 2.00% 1.99%
2099 78 2.00% 1.99%
2100 79 2.00% 1.99%
2101 80 plus 2.00% 1.99%

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 2021 is the risk-free rate to match the cash flow for the period 1 February 2021 to 31 January 2022.

Auditor Confirmation at 30 June 2020

The Office of the Auditor-General considers the table of risk-free discount rates and CPI assumptions as at 30 June 2020 have been determined in accordance with the associated methodology document (The Treasury Risk-free Discount Rates and CPI: Assumptions for Accounting and Valuation Purposes - July 2019). The rates and CPI assumptions are appropriate to use in:

  • 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 39 Employee Benefits, and
  • 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 September 2020. For example, if you know the duration of cash flows at 30 September 2020 is on average 10 years, you could use the 10 year spot rate of 0.5% 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 2020

The following risk-free discount rates are applicable to be used in the Treasury models issued under TC 2009/06 for 30 June 2020 valuations:

  • 1 year: 0.22%
  • 2 year: 0.25%
  • 3 year plus: 1.63%*

The Treasury Excel models also require a long-term salary inflation assumption of 2.72%**

  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 2020.
  2. ** This rate is based on using a 1.52% medium term inflation assumption (Spot CPI year 22) 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: [email protected]

Angela Ryan | Fiscal Reporting, The Treasury
Tel: +64 4 917 6102
Email: [email protected]

Last updated: 
Wednesday, 3 February 2021