Some Portfolio Investment Entities (PIEs) have got approval to join the Retail Deposit Guarantee Scheme, but don't assume your PIE is guaranteed.

PIEs are collective investment schemes that get special tax advantages. The income you get from the PIE is taxed at your tax rate except if you're a high-income earner. Then you pay only 30 percent tax on the income from the PIE, not the 33 percent or 38 percent tax you would normally pay.

PIEs give you access to investments such as shares, property and cash. Several banks offer PIEs that operate like normal call accounts or term deposits but have the tax advantages of PIEs.

The key thing about PIEs is that they are stand-alone managed funds. Even if they're sold and managed by a bank they aren't a debt held by the bank - so if the PIE gets into trouble, the bank is not obliged to repay you.

Some PIEs only invest in cash-type investments like government securities and bank bills. That makes these PIEs as safe in practice as the institutions covered by the deposit guarantee scheme. To give investors a clear idea of which PIEs hold only guaranteed investments, the government has allowed PIEs to apply to be included in its deposit guarantee scheme (run by The Treasury).

And what a scrum this has caused. Fifteen have been included already and many more are lining up to get approval.

The list of which institutions and PIEs are in the deposit guarantee scheme is updated daily on The Treasury's website.

It's anyone's guess what will happen in the lead-up to the expiry of the government deposit guarantee scheme in October 2010. The Treasury's position is "The guarantee will not cover any default after the guarantee period ends, even if the debt security was taken out during the guarantee period. Once an institution's application is accepted the deposit guarantee will be effective from 12 October 2008 and will last until 12 October 2010".

So don't assume the guarantee for the PIE, or the securities it holds, will apply after 12 October 2010.

More information

• The Treasury: www.treasury.govt.nz

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