The Financial and Investment Business working party of the Law Society has issued the following guidance after discussion with the Pension Schemes Office (PSO) of the Inland Revenue about PSO Update no 33 issued in September 1997.This dealt with the tax consequences of financial advisers or other intermediaries (for example, solicitors) passing commission received from new business relating to occupational and personal pension schemes to clients.

Solicitors are urged to read the update, which is reproduced below as this sets out the PSO's position.An example is where a solicitor advises his or her individual client directly or indirectly about making a transfer from an occupational pension scheme to a personal pension scheme, for instance, on redundancy or on changing from employed to self-employed status.

The solicitor, acting as an intermediary or conducting discrete investment business, may arrange for the transfer payment to be made from one scheme to another and this may result in commission being paid to the solicitor.The solicitor must, under Rule 10 of the Solicitors Practice Rules 1990, pay or credit the commission to his or her individual client, unless having disclosed the amount or basis of calculation or an approximation in writing, t he individual client agrees to the solicitor keeping the commission.The Law Society understands that where commission is passed to and retained by the individual client, there is a risk that the relevant scheme approval may be jeopardised, in relation to all occupational and personal pension schemes whether a transfer or new business.

However, if the commission is used to enhance the receiving pension scheme on the individual client's instructions, this will not normally compromise the continued approval of either the transferring or receiving scheme.Therefore, the solicitor, before confirming instructions, should ensure that the client is aware of the adverse tax consequences if the commission is to be used other than to enhance the pension scheme.It is also understood that where the solicitor introduces the individual client to an independent financial adviser, who then shares the commission with the solicitor, retention by the adviser and the solicitor of the commission would not generally jeopardise approval of either the transferring or receiving scheme, provided that the commission paid is reasonable and there is no connection between the adviser/solicitor and the member other than the solicitor/client relationship.In conclusion, the options available to solicitors appear to be:1.

The commission is used to enhance the pension scheme; or 2.

The client agrees to the solicitor keeping the commission, because otherwise scheme approval might be prejudiced.If solicitors are unclear as to the position, they should contact the PSO for specific guidance on their individual circumstances.