What is my PIR? Picking the right prescribed investor rate in NZ

If you have KiwiSaver or a managed fund, there's a small setting attached to it that decides how much tax you pay on your investment returns: your PIR, or prescribed investor rate. Get it right and you pay the correct tax. Get it wrong and you either quietly overpay for years, or get a bill from IRD at the end of the year. It's one of the most common things Kiwis have set incorrectly, so it's worth five minutes to check.

What is a PIR?

A PIR is the tax rate a portfolio investment entity (PIE) uses to tax the income it earns on your behalf. Almost every KiwiSaver scheme and most managed funds are PIEs, so your PIR is the rate applied to the money your fund makes for you.

For New Zealand tax residents there are three rates: 10.5%, 17.5% and 28%. Your fund reports and pays this tax for you, so you never see a separate bill for it. That convenience is exactly why the wrong rate can sit there unnoticed.

The three rates, and how yours is worked out

Your PIR is based on your income over your last two income years (each one ending 31 March). You include two things for each year:

• Your taxable income (salary, wages, and anything else you'd put in a tax return), and
• Your PIE income (what your KiwiSaver and managed funds attributed to you that year, which your provider reports to you).

You then get the lowest rate that either of those two years qualifies for. Using the figures from IRD's IR861 guide:

• 10.5% if, in either year, your taxable income was $15,600 or less and your total income including PIE income was $53,500 or less.
• 17.5% if, in either year, your taxable income was $53,500 or less and your total income including PIE income was $78,100 or less.
• 28% in every other case.

The "either year" part matters. If one of the last two years was on reduced income (study, parental leave, a gap between jobs, going part-time), that lower year can pull your rate down, even if you're earning more now.

A couple of worked examples

Example 1: a full-time salary. You earned $75,000 in each of the last two years, with about $900 of PIE income. Your taxable income ($75,000) is already over the $53,500 cap for 17.5%, so neither lower band applies. Your PIR is 28%.

Example 2: a year off. This year you're on $70,000, but the year before you were studying and earned $14,000 plus $300 of PIE income. That earlier year had taxable income under $15,600 and total income well under $53,500, so it qualifies for 10.5%. Because you only need one of the two years to qualify, your PIR is 10.5%.

Example 3: the middle band. You earned $48,000 taxable with $2,000 of PIE income. Taxable income is under $53,500 and the combined $50,000 is under $78,100, but you're over the $15,600 line for the lowest band. Your PIR is 17.5%.

You can run your own numbers with the PIR calculator, including the two-year comparison.

Why the wrong PIR costs you

If your PIR is too high, you overpay tax on your investment income. This is the sneaky one: the tax comes straight out of your fund before you ever see it, so nothing looks wrong. Someone who should be on 17.5% but is sitting on 28% is handing over more than they owe, every year, on every dollar their fund earns.

If your PIR is too low, IRD squares it up after the end of the tax year and you may have tax to pay. You haven't got away with anything: you've just delayed the bill.

If you give no PIR at all, your fund defaults you to 28%, the top rate. For a lot of people that's higher than their correct rate.

Since 2020, IRD has checked PIRs at year end and can tell your provider to correct an over- or under-payment, but it's still worth setting the right rate yourself so you're not out of pocket during the year.

How to check and fix your PIR

1. Work out your taxable income for each of the last two tax years (your income tax summary or payslips will show this).
2. Add the PIE income your provider reported for each of those years.
3. Apply the test above, or use the PIR calculator, and take the lowest rate either year qualifies for.
4. Log in to your KiwiSaver or fund provider and update your PIR there. It's usually a single field in your account settings. Make sure your IRD number is on file too.

It's a good habit to review your PIR once a year, especially if your income has changed. A raise, a new job, a year of study, or a period of parental leave can all move you between bands.

KiwiSaver and PIR together

Your PIR only affects the tax on your KiwiSaver returns. It doesn't change how much you contribute or how much of the government contribution you can claim. Those are worth checking separately: our KiwiSaver max-out calculator shows how much more to put in before 30 June to claim the full government contribution.

Two settings, both easy to leave on autopilot, both worth a yearly look: your PIR (so you're taxed correctly) and your contributions (so you're not leaving free money behind).

The short version

Your PIR is the tax rate on your KiwiSaver and managed funds: 10.5%, 17.5% or 28%, set by the lower of your last two income years. The wrong rate means overpaid tax or a bill, and a surprising number of people have it set wrong. Check your two years against the thresholds, or run the PIR calculator, then update the rate with your provider.

This is general information to help you understand how PIRs work, not tax advice. For your own situation, check ird.govt.nz/pir or talk to your fund provider.