THE Revenue Commissioners has informed the Irish Brokers' Association that people who receive commission rebates from brokers in the form of gifts or cash may have to pay tax on the rebate. It has also warned that it may withdraw approval from company pension plans which accept commission rebates in addition to full tax relief on the investment amount.

The Irish Brokers' Association has informed its members of instructions it has received from the Revenue Commissioners about the rebating practice which has merged. The Revenue is trying to stamp out the situation where a broker rebates a large percentage of its commission back to the customer, either in the form of cash or an equivalent value gift or holiday. The IBA gave the example of the person who invests £10,000, the commission of which is worth £4,000 or 40 per cent. The broker rebates £2,000 and keeps £2,000 for himself. The client receives full tax relief on the £10,000 contribution (i.e. £4,800 at 48 per cent) but in fact has only paid out £8,000. Maximum commission on pensions can be as high as 60 per cent of the first year's contributions.

Other broker sources have told Family Money that the rebating of commissions or the handing over of gifts has resulted in a serious underselling atmosphere which is beginning to affect the business of brokers who adhere to the spirit as well as the letter of the Irish Insurance Federation commission agreements for intermediaries. These voluntary agreements between the insurance companies set out to establish a level playing field for all intermediaries and brokers in order to avoid the kind of underselling which has emerged.

Heightened competitiveness, and the emergence of fee based rather than commission remunerated brokers and advisers, means that clients are more aware of the impact of commissions and, other charges on the value of their pension funds.

Fee based brokers insist that the way to end the practice outright is to abandon the commission system and for self employed clients to arrange their pensions on a single premium, fee only basis.