The Humble PIE Part 2 – Simple, Efficient, Cost-Effective & Relevant

Written by Tom Stanley, Investment Adviser, February 2024

You may be familiar with the lunch time (or late night) snack that is a service station pie, but this note is about the Portfolio Investment Entity (PIE), an investment format unique to New Zealand.

P.S. If you are going to read one of my summaries this year, make it this one, and save yourself some money. 


  • Trust tax rates are about to move from 33% to 39%, investing through Portfolio Investment Entities (PIEs) can limit the impact of this tax increase. 
  • While Trustees should be looking at PIEs, all Kiwis should be aware of the efficiency a PIE can create as you don’t need to be in the top 1% to take advantage of cost and tax savings. 
  • Investing through a PIE is often the simplest and most tax efficient solution for New Zealand investors, as the tax treatment is simple, and the top tax rate of a PIE is 28% (not 33% or 39%). 
  • By investing through a PIE, you can pay up to 40% less tax, get better returns, and harness the power of the crowd – sound too good to be true? Its not.
    • For example, an investor or trust taxed at 39% can achieve a 6.96% effective yield from on-call cash while taking no more risk than a standard savings account by holding cash in a Cash PIE Fund – no ‘hidden secrets’ or ‘ life hacks’, it is just a case of knowing your options, and making the most of them. 
  • Call to Action: The incoming tax change is a good catalyst for all investors to review their investment strategy for tax efficiency. 

If you are receiving this email, you are already a client, or close friend of Amicus. If you want to review your strategy or check you are harnessing the power of the humble PIE, please call, email, or book a meeting through the links below to discuss your strategy.

Additional Resources:

  • Kernel & MyFiduciary’s white paper on PIEs and investing abroad – a thoughtful and thorough resource considering the pro’s and con’s of different ways to access investments abroad (from a NZ perspective).
  • This September 2023 note The “Rules Of The Game” – Football & Tax is more relevant than ever as the ‘rules’ continue to evolve + shares examples for those wanting explore how they can invest more efficiently.
  • This May 2023 note on Lazy Money explores all the options for getting a fair return on your cash.
  • The team at Amicus. If you are receiving this email, you are already a client and we are here to help you navigate your wealth journey – call, email, or online booking – do not hesitate to reach out.

Note: Since the change of NZ government there has been chatter of tiered tax rates for trusts (similar to income tax rates), however this slight pivot is still to be confirmed, and does not impact the efficiency of PIEs – See Jenee Tibshraeny: Nicola Willis unveils plan to exempt some trusts from tax rates.

For those that want to hear more about PIEs – grab some tomato sauce and let’s dig in… Over the summer I had friends from the UK stay with my wife and I for a few days. Christchurch was their last stop on a 6-week tour of New Zealand. Two comments they made stuck with me:

  1. New Zealand is ‘cheap’: They felt $1 here had roughly the same buying power as a £1 did back in the UK (I.e. a $5 coffee would be £5 back in the UK). But with $1 NZD buying less than £0.5 GBP at the moment, it was like everything was on sale with 50% off (the cost-of-living crisis is real here, but even more real in the UK).
  2. New Zealand pies are great: They couldn’t believe how much better NZ’s service station pies were compared to a cold UK meat pie – I agreed.

Stick with me… there is a decent analogy here.
While we may not all love service station pies… and they may not be the most nutritious… they are a very efficient, convenient, and cost-effective lunch option.
Portfolio Investment Entities (PIEs), the subject of this note, share all these traits.

The Efficiency of a PIE
This point isn’t complicated – investing through a PIE can mean paying less tax – and the savings can be material especially for those holding cash or income generating assets.
Many read my notes from May 2023 (‘Lazy Money’) and September 2023 (“Rules Of The Game” – Football & Tax).
But only a few clients acted.
One client who acted was holding a significant amount of cash (intentionally), and moved their cash holding into Nikko AM’s Cash Fund (link) – I asked for permission to share their thoughts.  
Prior to acting the client sent the following email to me:
“As long as my math is correct, I could increase my cash return by 35% investing it in the fund (Nikko AM Cash Fund).
I’m starting to understand these tax efficiencies.
Not that the return is huge, but when it’s bigger I can see how it makes a significant difference.”
This client was subject to the 33% tax rate, not 39% that trusts may be hit with, but still realised the benefit of a Cash PIE – In part because 15% less tax (28% tax, not 33% tax), but also because the scale of Nikko AM’s Cash Fund enabled higher returns than his on-call ANZ Serious saver (6.04% gross yield vs 4.5% interest offered by ANZ).
After considering the tax efficiency the client had signed up for an effective yield of 6.5% while diversifying his exposure to banks and taking on no greater credit risk.
The part I enjoyed the most was that the client sent through their calculations – On the back of an envelope they worked out they were approximately $4,000 better off per year (after tax and fees) with this small change.

For context, the Nikko AM Cash Fund holds cash and cash equivalent assets with the likes of Westpac, ASB, and Kiwibank. In their Cash Fund Nikko AM manage approx. $900m NZD of assets, this scale means they carry a bigger stick than your average retail investor and can negotiate better terms with banks.

Are you sitting on ‘Lazy Money’ that could generate a higher return and be held more efficiently?

The Convenience of a PIE
PIEs were created in October 2007, following the introduction of KiwiSaver. Before then, tax laws meant that investors in New Zealand managed funds could find themselves paying much more tax compared to if they had invested directly in shares – this was a significant disincentive to investing in managed funds and would have discouraged people from joining KiwiSaver.
The PIE rules mean that investors and entities pay tax at their own tax rate (the Prescribed Investor Rate or PIR), which is usually slightly lower than their income tax rate (see The “Rules Of The Game” – Football & Tax).
As PIE rules have been developed for the mass market of KiwiSaver, the tax treatment is intentionally simple and efficient. PIE income information is provided direct to the IRD each year and is automatically included in each investor/entity’s income summary in MyIR.
While we recommend all clients complete a tax return (as many expenses may be deductible), this approach of placing the burden of tax calculation on the manager of the PIE typically leads to less complexity and lower accounting costs for the average investor.
Like Ferg Bakery and Fairlie Bakehouse have inspired many around the world to re-consider the humble pie, KiwiSaver prompted many local and international managers to launch PIEs accessible outside of KiwiSaver.
The range of PIE investment options is growing rapidly – Portfolio Investment Entities have been created for:

… and more.

When coupling this range of investment options with the modern investment platforms such as Consilium (or InvestNow for the DIY investor), it is now more ‘convenient’ than ever for a New Zealand investor to access and create simple, tax efficient, investment portfolios with genuine manager and strategy diversification.  

The ‘Cost-Effectiveness’ of a PIE

Many people focus on the fees charged by fund managers, but this focus often misses out on the value and cost savings from investing in the same strategy alongside other investors and having an institutional manager on their side.

As outlined above, Fergus McDonald manages approximately $900m NZD in the Nikko AM NZ Cash Fund alone. When investing in Nikko AM’s Cash Fund, you are leaning on this scale, and Fergus’s +50 years of experience to get the best possible interest rates from the likes Westpac, Kiwibank, ANZ and the NZ Govt.

How do you know a manager is on your side? The investment management world is competitive, and managed fund performance is compared after fees and costs. When considering NZ ‘cash’ funds alone, there are dozens to choose from, but Nikko have been the standout with scale and the best (after fee) 10 year track record – See MJW report.
With every manager benchmarked by their performance it is clearly in a manager’s best interest to keep every cost as low as possible. On your behalf managers will often squeeze brokerage costs, foreign exchange fees, and other costs as every $ they pay to brokers eats into the performance they report to their investors.
The problem? Most retail investors are not aware of how competitive institutional pricing is relative to retail pricing.  
Example – Costs & Global Equities – Kernel’s S&P 500 PIE Fund:
Kernel charges 0.25% per annum ($250 per $100,000 invested) to let NZ investors own a piece of the largest 500 US companies in the US via a PIE Fund (known as the S&P500).  
Let’s take a quick look fees charged vs costs saved for investors wanting to invest in the S&P500.
There are many other ways to invest into the 500 companies that make up the S&P500. To keep it simple, let’s compare Kernel’s approach to using a broker to buy the equivalent exposure through a US listed fund (ETF), and ‘trying’ to replicate Kernel’s Fund by buying each of the 500 shares directly in the US:

* Note this is not a comprehensive break down of fees, as it does not consider advice fees or platform costs it is simply highlighting the difference in fund management and transaction costs when using different approaches.
It is worth noting that under the surface, Kernel actually hold VOO.US (the US listed ETF) to replicate the S&P500, but they are pooling thousands of investors buying power to make it easier to access and keep total costs low – Economies of scale is very real in investment management!
The key points I want to leave you with on this section – PIEs create great tax outcomes for most NZ investors, but also:

  1. Offer access to institutional managers who typically have significant expertise (be that in index replication or active management).
  2. Typically lead to lower transaction costs as investing as a group through a managed fund creates scale that allows managers to negotiate wholesale pricing on brokerage and foreign exchange costs.
  3. Allow investors to invest in a diversified manner without needing millions of dollars.

The Relevance of a PIE – For Trusts and Trustees
Per the above points, PIEs can already offer material efficiency and convenience for your everyday investor. But, with the tax rate for family trusts likely increasing from a flat 33% to 39% from 1 April 2024, PIEs have never been more relevant to trustees – especially considering Trustee’s duties.  
Many Kiwis use trusts for asset protection, and/or succession planning, and if trustees do not review how investments are structured, the trust may face the full impact of this 6% increase in tax which can be a material headwind over the longer term.
Not all trusts will be impacted by the proposed changes – If a trust fully distributes its income to its beneficiaries, that income is taxed at the recipient’s marginal tax rate meaning the upcoming trust tax increase will not affect them.  However, if the trust does not distribute all its income, then the trustee flat rate of 39% will likely apply. That said, the current trust tax rate of 33% is still higher than the top tax rate of a PIE (28%) meaning any change is just increasing an efficiency that already exists!
Also, when it comes to trusts, not all PIE structures are created equal – an important consideration is efficient deduction of trust expenses against PIE income.  The individual circumstances of a trust and its beneficiaries may provide avenues to further optimise after-tax returns by using a combination of PIE and non-PIE investment assets in a portfolio.
With the incoming tax changes, it is a good time for trustees to review their trust investment strategy for tax efficiency. While taxes should never be the primary reason for making an investment decision, they are an important consideration as each investment pathway has its own risks, benefits, and nuances in how they are treated by the IRD.
If you have a trust facing an increase in its tax bill and would like advice on how investments can be structured to benefit your trust and beneficiaries, please click one of the links below to book a free, no-obligation meeting with one of our advisers.
If you have made it this far, thank you as always for your time. I appreciate the depth of this article may have created more questions, please remember, we are here to help.

Disclaimer: Please note that this note is general in nature. It should not be taken as tax advice, and does not constitute personalised financial advice.

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