PIE Funds in NZ: How They Work and Who They Suit

PIE structured funds receive some favourable coverage. The dominant reason is tax, or more precisely, the perception of a meaningful tax saving. The top Prescribed Investor Rate on a PIE fund is 28%, compared with a top personal income tax rate of 39% and a trust tax rate of 39% (since 1 April 2024). On the face of it, the gap looks compelling.

But the headline comparison is misleading. The actual tax saving from a PIE fund, compared with a well-managed direct portfolio, is far smaller than the 11 percentage point difference suggests. In many scenarios, it is close to zero. The case for PIE funds rests on something else entirely: simplicity, convenience, and structural protections unrelated to the rate itself.

If you earn above roughly $78,100, hold investments outside KiwiSaver, or invest through a trust, the PIE structure is worth understanding. If your income places you on a 17.5% or 10.5% tax rate, your PIR already matches your personal rate, so the PIE tax cap offers no advantage. Trusts face a clearer case. Since April 2024, the 39% trustee rate on retained income means the 11 percentage point gap to a 28% PIR is genuine and compounds over time. For individual investors on the top rate, the practical benefit is much narrower once you account for how overseas investments are taxed. We explain why below.

And if you think PIE fund just means KiwiSaver, it is worth reading on. KiwiSaver Schemes are PIE funds, but PIE funds extend far beyond KiwiSaver and in many ways offer more flexibility.

Before you ask, PIE funds have nothing to do with edible pies.

What is a PIE fund?

A Portfolio Investment Entity, or PIE, is a type of managed investment fund with special tax rules under New Zealand law. The PIE structure was created to simplify how investments are taxed and to encourage New Zealanders to save and invest through pooled funds.

In a PIE fund, an investment manager pools investors' money and invests it across a range of assets. Instead of paying income tax at your personal rate on returns earned within the fund, you pay at your Prescribed Investor Rate (PIR), capped at 28%. The fund manager handles all tax calculations and payments to IRD on your behalf. The taxable income or loss allocated to you is calculated daily and deducted from your investment at the end of each quarter.

Types of PIE funds

Most managed funds in New Zealand are structured as PIEs. The two types you are most likely to encounter are multi-rate PIEs and listed PIEs.

Multi-Rate PIEs (MRPs) are the standard structure for managed funds, KiwiSaver Schemes, and most unlocked investment funds. Each investor is taxed at their own PIR, so two people in the same fund can pay different tax rates. Almost every retail PIE fund in New Zealand uses it.

Listed PIEs are exchange-traded funds (ETFs) listed on the NZX, such as the Smartshares range. They carry the same PIE tax treatment but are bought and sold on the stock exchange like any other listed security. Listed PIEs suit investors who prefer a brokerage account over a managed fund application.

A few banks also offer term deposits packaged as PIE funds, which deliver the PIR tax benefit on interest income. These are separate from investment PIEs but use the same framework.

How PIE funds came about

A driving force behind the PIE structure was the introduction of KiwiSaver. The government wanted to encourage participation in managed funds, which meant removing some of the previous tax disadvantages of pooled investing. The PIE structure allows individuals to invest into a fund, including a KiwiSaver Scheme, without completing a tax return for their investment income.

But KiwiSaver is only one application. Unlocked managed funds, many superannuation schemes, bank term deposit PIEs, and NZX-listed ETFs all use the same framework. KiwiSaver funds are generally locked until age 65. For investors who want the tax benefit without the lock, non-KiwiSaver PIE funds are often the more practical choice.

Prescribed Investor Rate (PIR)

In any PIE investment, you need to know your PIR, because it is your responsibility to advise your fund manager of the correct rate.

Your PIR is based on your taxable income over the previous two tax years ending on 31 March. Following the income tax threshold changes from April 2025, the PIR thresholds are:

• 10.5% if your taxable income is $15,600 or less and your combined income (including PIE income) is $53,500 or less.
• 17.5% if your taxable income is $53,500 or less and your combined income is $78,100 or less (and you do not qualify for the 10.5% rate).
• 28% if your income exceeds the above thresholds.

The boundaries were $14,000, $48,000 and $70,000 before April 2025. If you do not choose a PIR, you will default to 28%.

Getting the rate wrong has consequences, and it is one of the most common tax mistakes New Zealanders make. If your PIR is set too high, you overpay tax during the year. Inland Revenue squares this up after year end. The overpayment becomes a credit, applied first against any other tax you owe, with the balance refunded. The cost is the return the money would have earned had it stayed invested rather than sitting with Inland Revenue until the square-up. If your PIR is set too low, the shortfall is added to your end-of-year tax bill.

Errors are especially common after a pay rise, a move to part-time work, a redundancy, or when a trust's income profile changes. It takes two minutes to check, and the IRD's online PIR tool makes it straightforward. Review your PIR at least once a year, and sooner if your income has shifted.

PIE tax is a final tax

Tax on PIE investments works differently from other types of investment tax. The tax paid at the PIE level is usually a final tax, so individual investors do not have to return their PIE income or pay further tax on it.

Most investors underestimate this advantage: no additional compliance burden and no tax return for the PIE income. Inland Revenue still runs an end-of-year PIE calculation to check the rate used was correct, but it happens automatically and asks nothing of most investors.

The tax saving is smaller than you think

The 28% vs 39% gap is genuine on paper. In practice, the after-tax difference between a PIE fund and a well-managed direct portfolio is marginal.

Most PIE funds holding international shares calculate tax using the Fair Dividend Rate (FDR) method. The fund treats 5% of the opening market value of the overseas portfolio as taxable income each year, regardless of actual returns. At the top PIR of 28%, the result is a fixed tax drag of 1.40% per year on the overseas share component. It applies every year, in every market condition, with no exceptions.

In a year when the market falls, a PIE investor still pays tax on a deemed 5% return. If your portfolio drops 15%, the fund still deducts tax as though it rose 5%. There is no relief, no offset, and no option to defer.

Now compare holding the same shares directly above the FIF threshold. New Zealand-domiciled PIE holdings, including a KiwiSaver balance, are excluded from that threshold entirely, because the fund handles FIF at fund level. An investor on the top 39% marginal rate using FDR faces a theoretical maximum tax drag of 1.95% per year (5% x 39%). The direct number looks worse. But direct investors have an option PIE investors do not: they can elect the Comparative Value (CV) method in any year where it produces a lower result.

Under CV, if the portfolio declines in value, taxable income is zero. Tax owed is nil.

Consider a concrete example. An investor holds $60,000 in a US-listed ETF. During the year the portfolio falls 8%. No dividends are paid.

Under FDR: taxable income is 5% of $60,000 = $3,000. At a 39% marginal tax rate, the investor pays $1,170 on a portfolio that declined in value.

Under CV: the portfolio fell. Taxable income is zero. Tax owed is nil.

Same year, same investor, $1,170 difference. The PIE investor has no escape from the FDR outcome. The direct investor pays nothing.

Now reverse the scenario. The same portfolio returns 18%.

Under FDR: taxable income is $3,000. Tax at 39% is $1,170.

Under CV: taxable income is $10,800. Tax at 39% is $4,212.

In a strong year, FDR wins by a wide margin. In a down year, CV wins entirely. The ability to switch annually is genuinely valuable.

In practice, this is where we most often see investors make expensive mistakes. The distinction between FDR and CV sounds academic until the numbers are on the table. Over a full market cycle, roughly a third of years have historically delivered flat or negative returns for global equities. A direct investor switching methods annually may achieve a blended long-run tax drag somewhere in the range of 1.40% to 1.50%, which is very close to the PIE's 1.40%. Over a lifetime of investing, the difference is marginal.

Weighing up how to structure overseas holdings across PIE and non-PIE vehicles, or unsure which method applies to you? It is exactly the type of decision where professional investment management adds value. Book a complimentary initial consultation to discuss your circumstances.

What PIE funds offer

If the tax rate saving is marginal for individuals, why do PIE funds attract so much capital? Because their genuine advantages lie elsewhere.

Simplicity and zero compliance

Simplicity is the strongest practical case for PIE funds, and it is routinely undervalued.

With a direct portfolio above the FIF threshold, you need to track your cost basis, calculate FDR and CV each year, choose the better method, file an IR3 return, and pay the tax. You can outsource this to an accountant, but the cost and effort are still there.

With a PIE fund, the fund manager handles everything. Tax is deducted automatically. No return is required. For investors who value simplicity or lack the time or inclination to manage annual FIF compliance, this alone can justify the PIE structure.

No US estate tax exposure

Less well known, but significant for investors with sizeable US-listed holdings.

Non-US residents who hold US shares or US-listed ETFs directly face a potential 40% US estate tax on the value of those holdings above USD$60,000 on death. A New Zealand investor with a reasonably sized US share portfolio is well within range.

Holding equivalent exposure through a New Zealand-domiciled PIE fund removes this risk entirely, because the fund, not the individual, holds the underlying US assets. For investors with larger portfolios, this structural protection alone can be a compelling reason to use a PIE vehicle.

Wholesale pricing

Because investors' funds are pooled, a PIE fund can access wholesale pricing on foreign exchange, brokerage, and custody fees. An individual investor buying shares directly pays retail rates for each of these.

In a well-run PIE fund, the scale advantage can be sizeable, though the fund's management fee and any buy/sell spreads need to be weighed against the saving. Direct investors face brokerage too, so this is not a one-sided comparison.

The trust advantage

Since 1 April 2024, the trustee tax rate on retained income above $10,000 has been 39%, up from the previous 33%. A trust investing in a PIE at a 28% PIR pays 11 percentage points less on the investment income than it would on equivalent income retained and taxed at the trustee rate. At the 28% PIR the PIE income is a final tax, excluded from the trust's income tax return and from beneficiaries' taxable income.

Unlike the individual investor comparison above, trusts investing through PIE funds do not have the option to switch to CV at the personal level. The rate saving for trusts is therefore more clear-cut, and it compounds over time. For trusts holding income-generating assets, the PIE structure delivers a benefit close to the headline number. It is an investment decision, not a restructuring exercise.

The drawbacks

PIE funds come with costs and limitations. These should weigh as heavily as the benefits in any decision.

Fees can erode or exceed the tax benefit

If the fees and charges within a PIE fund are too high, they can partly or entirely cancel out any tax advantage.

A fund charging 1.5% per year in management fees, on top of underlying costs and buy/sell spreads, might leave an investor worse off than a low-cost direct portfolio. The comparison holds even before the marginal tax rate difference is counted. Careful analysis of the total cost is essential. Look beyond the headline management fee to understand performance fees, administration charges, and the costs embedded in underlying investments.

Not all PIE funds are created equal

A New Zealand PIE fund generally has a lower tax burden on overseas investments, but only if it directly holds the underlying overseas shares. Some managers use feeder fund structures, where the PIE invests into an Australian Unit Trust or similar offshore vehicle rather than holding the shares directly. In these cases, the investor may not receive the full PIE tax efficiency.

If the tax benefit is a key reason for choosing a PIE fund, check how the fund holds its overseas investments. The product disclosure statement (PDS) and the Disclose Register are the places to look. A useful question to put to your provider directly is whether the fund holds overseas shares itself or invests through an Australian Unit Trust or other offshore vehicle. The answer tells you whether you are getting the PIE tax treatment you expect.

Choice can be overwhelming

At last count there were more than 50 providers licensed to offer PIE funds in New Zealand, and an extraordinary range of fund choices within them. Some are listed on the stock exchange as ETFs. Many are unlisted but accessible. Most individuals would benefit from professional guidance to navigate the choices, particularly for larger sums.

Transparency requires effort

With a PIE fund, you need to trust the fund manager. What exactly any given PIE fund is invested in, and the investment risks being taken, are not always obvious to a retail investor. Relevant information is disclosed on the Disclose Register, but drawing meaningful conclusions from the disclosures is not something most people would find easy.

The Revenue Account Method and PIE funds

The Revenue Account Method (RAM) is a FIF calculation method allowing eligible investors to pay tax on realised gains rather than annual deemed income. Under RAM, 70% of the capital gain on sale is taxed at the investor's marginal rate (a 30% discount on the gain), with dividends taxed when received. For a 39% taxpayer, the effective tax rate on gains is 27.3%.

RAM was enacted in March 2026, with effect from the 2025/26 tax year (1 April 2025). Initial eligibility was restricted to recent migrants who became NZ tax resident on or after 1 April 2024, and returning New Zealanders who had been non-resident for at least five years.

The Government's 2026 Budget proposes substantial expansions of RAM eligibility from 1 April 2026, subject to legislation:

• RAM would extend to all New Zealand tax residents for their unlisted foreign shares (expected to be limited to natural persons and family trusts).
• An extended version would be available to dual-tax-exposed individuals such as US citizens and Green Card holders, covering both listed and unlisted foreign shares.

The expansion changes the PIE versus direct comparison substantially for some investors. If you qualify for RAM on directly held overseas shares, the case for holding those same assets in a PIE fund weakens. RAM may produce a lower tax outcome than the PIE's fixed 1.40% drag under FDR. The proposed broader RAM applies only to unlisted foreign shares for ordinary NZ residents. Listed foreign shares continue to fall under FDR or CV unless extended RAM applies. The overlap between the regimes is complex, and professional advice before your next tax filing year is worthwhile.

Why PIE tax rules are unlikely to change

Tax rules are notorious for being subject to regular change. Despite this, most commentators agree it would be politically and practically difficult to raise PIE tax rates.

The top PIE tax rate of 28% mirrors the company tax rate of 28%. If PIE tax were raised, it would likely need to be done in conjunction with the company tax rate, particularly given how many PIE funds invest into New Zealand companies. New Zealand's company tax rate is already higher than in most comparable countries, including Australia, where companies with gross income of up to $50 million pay federal tax of 25%. Raising the rate further would risk driving corporate relocations offshore.

There is also political precedent. In 2022, an attempt was made to introduce GST to KiwiSaver Scheme fees. The public reaction was so fierce, backed by criticism from commentators and financial experts, the government reversed course within 24 hours of the tax passing its first reading in parliament. Any future government considering changes to PIE tax rates would be well aware of this history.

Even if PIE tax rates were increased, an investor in an accessible (non-KiwiSaver) PIE fund could simply withdraw their proceeds and invest in another manner.

Tax should not wag the investing dog

Get the investment decision right first. Then make sure the structure around it is not quietly giving away returns you could have kept.

Tax efficiency should be the third most important investment consideration, behind the quality of the investment itself and the fees and charges associated with it. The right investment in a less tax-efficient structure will almost always outperform the wrong investment in a perfectly optimised one. Asset allocation, diversification, investment quality, fees, and your own behaviour as an investor all have a larger bearing on long-term outcomes than tax drag alone.

In practice, many well-constructed portfolios use a blend of PIE and non-PIE vehicles, each chosen for a reason specific to the investor's circumstances. Getting the mix right is where good investment management earns its keep.

Tax regulations change frequently and can be complex. Here at Become Wealth we are financial advisers, not accountants or tax advisers. Proceed carefully before taking any tax-based actions (or not taking them) and be sure to seek professional tax advice first.

The bottom line: PIE funds

PIE funds are a useful tool, not a universal answer. Where PIE vs non-PIE decisions get expensive is rarely the tax rates themselves. The cost comes from applying the wrong structure to the wrong portfolio, or paying high fund fees for a wrapper you do not need.

If you are not ready to act on any of this now, the single most useful step is to check your PIR is correct and understand roughly where your investments sit in terms of structure. Doing so puts you ahead of most. And when the time comes to make a decision, or if you want a second opinion on your existing arrangements, our investment team can help. Book a complimentary initial consultation to get started.