A PIAS is a long-term savings product less well known than the pension plan, but with its own distinct tax advantage: it doesn't reduce your taxable base when you contribute, but it can become exempt from taxation when you cash it out, if certain requirements are met.
What a PIAS is
A Systematic Individual Savings Plan (Plan Individual de Ahorro Sistemático) is a savings-linked life insurance product, in which you make periodic contributions that accumulate over time, with the goal of eventually using them to set up a guaranteed life annuity.
The key tax difference versus a pension plan
- Pension plan: contributions reduce your taxable base at the time you contribute (tax deferral), but when you cash it out it's taxed as employment income.
- PIAS: contributions don't give you any tax reduction at the time you contribute, but if you cash out the accumulated capital as a life annuity (not as a lump sum) and at least 5 years have passed since your first contribution, the return generated can become exempt from taxation.
The contribution limits
There's a maximum annual contribution limit for a PIAS, as well as a maximum total accumulated limit across all contributions made over the entire life of the product, both different from the limits applicable to pension plans.
Why how you cash it out matters so much
The tax advantage of a PIAS depends entirely on cashing it out as a life annuity, not as a lump sum. If you withdraw the capital all at once instead of setting up the life annuity, you lose the exemption and the return generated is taxed as investment income, just like any other conventional savings product.
Who this can be a good fit for
It can be an interesting option for someone looking to supplement their retirement with a guaranteed periodic income who values the tax exemption on cash-out, in exchange for accepting the lower flexibility of not being able to take advantage of any tax reduction during the contribution phase, unlike a pension plan.
Compare it against other retirement savings options
Our compound interest calculator lets you project the growth of your periodic contributions under different return assumptions, useful for comparing the expected gross result against other complementary savings alternatives.