What are the pros and cons of this PIE investment opportunity that all the banks are advertising?
I have just put a significant amount from my savings account into a cash
fund which my bank investment adviser said was just the savings account wrapped in a tax break, no difference at all.
And most importantly for me, it has the same risk attached. (I am a very "low-risk" person).
The pros of PIEs - or portfolio investment entities - far outweigh the cons. In fact, I'm struggling to think of a con, as long as your money is as accessible as you want.
PIEs, which came into being in October 2007, are managed funds. They include almost all KiwiSaver funds and many other savings funds as well as vehicles similar to savings accounts and term deposits.
Many PIEs that invest in cash - probably including the one you have invested in - are likely to be covered by the Government's new deposit guarantee scheme.
They are eligible to be included as long as:
The second requirement is to stop a cash PIE from taking advantage of the situation by boosting its investments in finance companies covered by the guarantee, which are likely to pay higher returns.
It's taking a little while for the Government's guarantees to be put in place, but I suggest you ask your bank if your PIE is likely to be covered by the guarantee. If not, move to a cash PIE that is covered.
Non-cash PIEs, which invest in other assets such as shares, corporate bonds or property, won't be covered by the guarantee scheme.
However, all PIEs have the following other attractive features:
It sounds a bit complicated, but think it through. If it would apply to you, it could mean big tax savings.
You may have noticed that the PIE cutoffs, at $38,000 and $60,000, are different from the new income tax cutoffs, at $40,000 and $70,000. That's because managed funds need time to adjust their systems to accommodate the tax cuts, says a Treasury spokesman.
The Government is considering adjusting the PIE rules to line up with the tax changes, but it "has not made any decisions on how or when the PIE rates would be changed", he adds. Any changes are likely to make PIEs even more attractive for many investors.
Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.
Mary Holm: Get Rich Slow: How to Grow Your Wealth the Safe and Savvy Way
Martin Hawes: 8 Secrets of Investment Success
Martin Hawes: Shares: Make Money and Beat the Market
Anita Bell: Your Investment Property: How to Choose it, Pay for it and Triple Your Return in Three Years
Lisa Dudson and Andrew King: Residential Property Investment in New Zealand
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