Cash PIEs get the official chop

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Cash PIEs have been incredibly popular attracting billions of dollars of investors' money since they were invented several years ago. However, changes to the government's deposit guarantee scheme will see them lose their protected status.  

Monday, December 21st 2009, 7:13PM 1 Comment

by Paul McBeth

The removal of cash PIE funds from the government's retail deposit guarantee next year is to "assist with moving toward tighter and more limited coverage" in the extension to the government's retail deposit guarantee.

There is a concern that the removal of the guarantee will see funds shift bank towards term deposits.

Currently there are 28 funds covered by the guarantee and a number of others which are outside the scheme.

The Treasury's regulatory impact statement on the extension to the scheme is "consistent with the core coverage" of the guarantee, and not a way to close a tax loophole, according to a department spokesman.

Collective investment schemes (CISs) are "legally different from deposits covered by the DGS (deposit guarantee scheme) in that units in these funds do not represent deposits or other liabilities and are subject to investment risk, including possible delays in repayment and loss of income and principal invested," Treasury says.

The exclusion will "reduce one of the boundary issues that has arisen between CISs and other institutions (such as mortgage trusts) with similar legal structures (but different investment approaches) that are not covered by the present DGS, and result in slightly reduced administration costs associated with managing separate deeds of guarantee," the report said.

The government decided to tighten up the scheme on advice from Treasury officials that it will cut the costs of guaranteed firms failing and help ease the financial sector out of guarantees. The Treasury boosted its provisions for the scheme to $899 million in the four months through October as the prospect of more failed finance companies grows.

PIE funds and non-bank deposit takers made up some 7% of the $128 billion covered by the scheme in August, according to Treasury. The total amount covered increased to $133.1 billion by the end of October.

Check and compare cash PIE rates here

Paul is a staff writer for Good Returns based in Wellington.

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