PIE Funds

PIE Funds

Joseph Darby

Pay less investment tax by investing in a managed investment called a PIE fund

It is well known in financial circles that hefty sums from New Zealand investors are flowing into investment products called PIE funds. Why? Tax.

More specifically, upcoming tax changes, which have drawn attention to the tax benefits of one specific investment structure: the Portfolio Investment Entity or ‘PIE’ fund.

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

What Is a PIE Fund?

The PIE structure was created to help simplify the taxation of investments. They are a simple, usually cost-effective, way that investors can pool funds to invest in assets.

In PIE funds, investment managers pool investors’ funds together in a way which is often the most tax efficient way for the investor to invest.

PIE tax rules cap the tax rate you pay on your investments at a maximum of 28%, or lower depending on your own tax rate. The amount of taxable income or loss allocated to an individual is calculated daily and attributed (i.e. deducted from the investment) at the end of each quarter.

The Start of PIE

A driving force behind the start of the PIE structure was the introduction of KiwiSaver. This prompted the removal of some of the previous disadvantages of investing in managed funds. The PIE structure allows individuals to invest into a fund (including KiwiSaver Schemes) and not worry about having to complete a tax return.

Prescribed Investor Rate (PIR) and PIE funds

In PIE investments, you’ll need to know the PIR that applies to you, as it’s your responsibility to advise your fund manager of your rate.

We know this might already be getting confusing with terms like PIE and PIR, so bear with us!

Your PIR depends on your taxable income, such as salary and interest, over the last two years ending on 31 March. There’s a tool on the IRD website to help you figure this out. PIR levels usually broadly end up in line with your marginal tax rate, and most often are either 10.5%, 17.5%, or the upper limit of 28%. This is significantly lower than the top marginal tax rate of 39% that an individual may otherwise pay on their investment income. This is one of the major benefits of the PIE investment structure.

If you don’t choose a PIR, you will default to the 28% level.

PIE Tax Is a Final Tax

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


Every KiwiSaver Scheme fund is a PIE Fund.

There are plenty of non-KiwiSaver Scheme PIE funds accessible to New Zealand investors too, including unlocked managed funds, many superannuation schemes, and so on.

PIE Fund Benefits

The advantages of PIE funds extend beyond just tax. Let’s take a closer look at the tax benefits, and more.

Lower Tax

You guessed it, investing in a PIE can provide significant tax advantages for New Zealand resident investors.

This is most pronounced for individuals on the 33% or 39% marginal tax rates, and for trusts who are also due to move to the 39% tax rate on 1 April 2024. This change in trust tax rate has caused the most attention to be drawn to PIE funds.

The marginal tax rate is the amount of additional tax paid for every additional dollar you earn as income. This is different to your average tax rate, which is the total tax paid divided by total income earned. The difference arises because of the progressive (tiered) nature of our income tax system, which taxes low earners lower percentages than high earners.

How Much Does Tax Matter?

One study has suggested for an investor on the top marginal tax rate investing in international stocks (shares), tax will reduce your long-term return by between 1.3% and 2.9% each year depending on how you invest. For Australian equities, the tax drag ranges from 1% to 2.7% per annum.

Such a difference might not sound like much, but that difference accumulates every single year. It compounds. Over many decades, the difference can be huge.

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The Way Pie Funds Are Taxed Is Unlikely to Change

Tax rules are notorious for being subject to regular change.

Despite this, most professionals seem to agree it would be a challenge to modify the existing PIE tax rules and increase PIE taxes. This is for several reasons:

  • The top PIE tax rate of 28% mirrors the company tax rate of 28%. If PIE tax were raised, it may have to be done in conjunction with the company tax rate, especially as so many PIE funds invest into New Zealand companies. This level is already higher than the company tax in most countries, including Australia, where companies with gross income of up to $50 million only pay federal taxes of 25%. If the company tax rate in New Zealand were raised, many New Zealand companies may move offshore.
  • Look at the uproar which occurred when an attempt was made to introduce GST to KiwiSaver Scheme fees in 2022. This attempt led to such a passionate public outcry, backed by criticism from a diverse array of commentators and financial experts, that a back-down occurred less than 24 hours after the tax passed its first reading in parliament, surely a record! The whole episode illustrated how KiwiSaver has become a passionate subject, and increasingly New Zealanders are aware of how a small tax, if amplified across a lifetime of investing, could add up to big sums.

Even if PIE tax was increased, if an investor was invested into an accessible PIE fund (not KiwiSaver, which has strict withdrawal criteria), the investor could simply withdraw their proceeds and invest in another manner.

PIE Funds Are Easy

PIE funds are a simple, tax effective way to invest.

With most investment tax rules, you need to read up carefully to comply and stay up to date with them, then file a tax return each year. Or, have an accountant handle everything for you. Then you’ll need to pay your taxes to IRD and still might be subject to audit or questions from IRD.

Not so with PIE funds, all of that is handled by the fund manager, and tax is paid by the manager on your behalf too.

PIE Investment Choices

PIE funds offered by mainstream New Zealand fund managers usually offer a variety of investment choices. These funds may have different blends of assets, such as shares, bonds, or property.

Pie Funds Avoid Retail Costs

Investing in a PIE fund can offer investors other benefits. Some of these are because of the benefit of scale: investors funds are pooled together, which increases the buying power.

For instance, if an investor directly invests into the stock market, that investor will pay direct and indirect retail costs such as foreign exchange, brokerage on shares purchased and sold, probably holding costs to a platform to hold the shares, and so on. In a PIE fund, these charges are still faced, but the fund manager can access wholesale rates because of sheer scale. Think of this as comparable to accessing a food distribution wholesaler rather than shopping at the supermarket.

Tax Background: The Inland Revenue Department (IRD) Have More Powers

In recent years, our tax collectors, the IRD, have gathered new powers via information sharing with other countries.

How? Like many things related to tax collection, this can be a confusing jumble of acronyms and jargon. The OECD has developed a Common Reporting Standard (CRS) for the Automatic Exchange of Information (AEOI) in tax matters between participating jurisdictions. The stated purpose is to assist with the detection and deterrence of offshore tax evasion. Over 100 jurisdictions have committed to implementing AEOI/CRS so far. The IRD’s website provides detailed guidance on the AEOI, which is almost 200 pages. In short, anyone attempting to hide assets from New Zealand tax collectors offshore are far more likely to get caught. This should provide plenty of deterrence for any reasonable person to play by the tax rules.

Are There Drawbacks of PIE Funds?

Like anything in life, PIE funds aren’t perfect. Here are some drawbacks of PIE-structured funds.

Fees and Other Charges

Sometimes, fees and other charges in the PIE fund itself can be a drag for the investor. If these costs are too high, they can cancel out any tax benefit.

Careful analysis of the fee structure of the fund can mitigate this issue.

Proceed with Caution

In some select cases there may be a more tax efficient way to hold investment assets. To avoid confusion, we’re not going to explore this here, but even if there is a more tax efficient way to invest in offshore assets when compared to a PIE, there will still be a higher paperwork burden as a tax return will need to be completed each year, plus likely retail costs such as brokerage and foreign exchange.

Tax regulations change frequently and can be horribly complex. Here at Become Wealth we’re 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.

PIE-related Confusion

Understanding tax can be taxing! This includes getting your head around some of the finer points of PIE funds.

There can also be confusion from too much choice of PIE funds. At last count there were over 50

providers licensed to provide PIE funds, and all manner of choice when it comes to the funds on offer too!

Some PIE funds are listed on the stock market as exchange traded funds (ETFs), many are unlisted and accessible, KiwiSaver Schemes are all PIE funds, and so are many older schemes. Many banks now repackage term deposits as PIE funds for the tax benefit, however this might also add to the confusion!


With a PIE fund, you need to trust the fund manager.

What exactly any given PIE fund is invested into, and the investment risks being taken aren’t always apparent to a retail (mum and dad) investor. Much of this information is disclosed in a central repository called the Disclose Register, though navigating this register and drawing any meaningful conclusions is not something most people would be able to do on a Sunday afternoon!

While it’s true PIE funds come with many practical benefits, most individuals would struggle to appropriately select-then-monitor a PIE fund manager.

Not All PIEs Are the Same

A New Zealand PIE often has a lower tax burden but only if it is directly holding the underlying overseas shares. As opposed to this, some managers employ feeder funds, which might be a PIE that just owns an Australian investment structure called an Australian Unit Trust, in which case the investor will usually suffer the same tax drag. Put another way, the investor won’t get the proper PIE tax efficiency.

Tax and Fund Structure Isn’t Everything

Tax is just one factor, it’s not the only factor.

Here at Become Wealth we think tax efficiency should still be the third most important investment consideration, behind:

  1. The benefits and drawbacks of the investment itself.
  2. Charges or fees associated with the investment. This includes initial and ongoing costs.
  3. Only then does tax efficiency come into it.

The Bottom Line: PIE Fund Popularity

With lower tax rates, simplified tax reporting and flexibility in choosing investment options, investing in a PIE can be a smart choice for those wanting to maximise their return.

If you would like to discuss anything about PIE funds with one of our financial advisers, or anything else related to your investment approach, get in touch to book your complimentary initial consultation.

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