What’s a Portfolio Investment Entity (PIE), and is it right for me?What’s a Portfolio Investment Entity (PIE), and is it right for me?

What’s PIE?

A portfolio investment entity (PIE) is an investment structure with a maximum tax rate of 28%. When you invest in a PIE, your money is held as units (like shares) in a fund—similar to investing in an ETF. 

Investment income from a PIE fund is taxed using your prescribed investor rate (PIR), which is capped at 28%. If your personal income tax rate is greater than your PIR, you may benefit from investing in a PIE because you’ll pay tax on any investment income based on your PIR.  

If your personal income tax rate is greater than your PIR, your after-tax return (cash in your pocket) is likely to be higher when investing in a PIE vs. an identical non-PIE investment. Now, usually they won’t be identical, and tax isn’t the only thing that affects your returns—you also need to factor in things like risk and fees.

What’s an effective rate?

To work out whether a PIE fund means more money in your hand, you can compare the effective rate on a PIE fund vs. a non-PIE investment. The effective rate is the investment return that you would need to get before tax (if taxed at your personal income tax rate) to achieve the same after-tax investment return as investing in a PIE with a PIR of 28%.

For example: 

• If you held $2,000 in a PIE investment paying an annual rate of 5%, you would expect to receive $100 before tax (assuming no compounding). Given the tax rate is capped at 28%, your after-tax return would be $72. 

• If you held $2,000 in a non-PIE investment that paid 5% and your personal income tax rate was 39%, your after tax return would be $61.

Using this example, to earn the same after tax-return of $72 in a non-PIE investment when your personal income tax rate is 39%, the investment would need to be paying an annual rate of 5.90%.  This is calculated as follows:

• $2,000*5.90%  = $118.03

• After-tax return = Before-tax return * (1-personal income tax rate)

• After-tax return = $118.03*(1-39%)

• After tax return  = $72 

The rate of return that the non-PIE investment would need to have in order to deliver the same rate of return as the PIE investment is called the effective rate of return of the PIE investment.

What makes up a PIE fund?

PIEs are a type of investment structure rather than being a standardised asset type, so they can vary greatly in what they hold. PIE funds are usually invested in a collection of assets like cash, shares, or bonds, or a combination. A PIE fund can be a KiwiSaver fund, a managed fund, a company or trust listed on the NZX, or even a land PIE that invests in—you guessed it—land.

Is a PIE fund right for me?

You’re more likely to benefit from investing in a PIE if:

• You pay income tax of 30%, 33% or 39%

• Or you pay a trustee tax rate of 33% or 39%.

You might see the biggest advantages if you’re pulling down more than $180,000 worth of income, as this could give you a tax rate of up to 39% on any investment income—meaning that investing in a PIE might increase your after-tax investment income due to the tax rate being capped at 28%.

If you’ve just gotten back to work after a break, a PIE fund  may also work to save on your tax bill.  That’s because if you’ve earned under $48,000 in taxable income and under $70,000 in total income during either of the last two years, your PIR is 17.5%. 

PIEs have also become a hot topic among trustees after a 2024 increase in trust tax rates. Trusts now face a 39% tax rate on any income over $10,000 vs. the PIR of 28% on a PIE fund.

How does the tax stuff work?

Generally, the PIE fund you’re invested in will pay your tax on your behalf—PIE tax is generally a ‘final tax’. As long as you’ve provided the right PIR rate, PIE tax should be sorted without requiring any intervention from you, similar to PAYE on your salary. 

Here’s Inland Revenue’s form to find your PIR.

I’m a Sharesies customer. What’s the difference between Sharesies Save and PIE Save?

As of December 2024, Sharesies offers both a Save and a PIE Save option. And at a glance, they’re hard to tell apart! So what’s the difference? 

First and foremost, 28% is the highest rate your PIE Save will be taxed at, compared to a ceiling of 39% for Save.

Another small but important difference is that withdrawals will take a little longer for PIE Save. It will take approximately one business day to withdraw money from PIE Save to your Sharesies Wallet (whereas Save can take just a few minutes). Like Save, you still earn a return on every dollar that remains invested.

Because PIE Save is a savings fund that’s also a managed investment scheme, you should read and accept a Product Disclosure Document (PDS) before you apply. 

Both account types will have a rate (called an ‘interest rate’ for Save and a ‘rate of return’ for PIE Save) before tax, with returns earned daily and paid monthly. The rates will be shared on the Save website.

Neither PIE Save nor Save comes with any fixed terms or minimums—you have full flexibility on size of deposits, withdrawals, and holdings.