The charge cap, which then-chancellor George Osborne put forward in June 2015 and the FCA confirmed last year, is due to come into force on 31 March and will cost Phoenix Life £10m in lost fees.
Phoenix Life has offset the costs of the capped withdrawal charge through provisions made within the actuarial reserves of its life business, according to chief executive Andy Moss.
“Effectively the way this operates – we would have had an assumption within our reserves which basically assumes that some people will lapse their policy early and in the past that would have been subject to an exit charge.
"We’ve now changed the assumption to say the maximum exit charge is 1 per cent.”
Mr Moss added around 10 per cent of Phoenix Life’s business would be affected by the 1 per cent withdrawal charge cap.
David Trenner, technical director at Intelligent Pensions, said these numbers will likely be “complete guesswork”, but added that clients who had been put off from withdrawals by high exit charges may now look to take out their money.
But he added that he has “some sympathy” with providers, as when the policies were issued the providers had to pay front end commissions or else they would not get any business from advisers, and would then apply backend charges to recoup the earlier commission.
He added that clients “did not understand this, but very few ever queried it”, and that it is shareholders in providers like Phoenix Life who will lose out from slashed dividends.
“Politicians have seen that attacking back end fees is popular with voters, so they have done it.
"At the end of the day shareholders in the provider are the ones who lose out, with reduced dividends resulting from reduced profits resulting from reduced charges,” Mr Trenner said.
A spokesman for Phoenix Life confirmed that Phoenix Life is not slashing dividends.
Mr Moss said Phoenix Life has been making an effort to improve clarity and transparency of the fees it charges to clients, and emphasised the “value for money” that clients receive from these services.
“We’ve been writing to customers to remind them of the benefits of the products so they take full advantage of all their product features,” Mr Moss said.
“We’ve been very proactive in trying to point out the overall value for money for those [products] and the charges depend on the types of benefits and guarantees within those products.”
He added the company has not made any decisions to reduce fees at the moment, and emphasised that the focus has been more on ensuring that clients understand what they’re getting for their money.
Phoenix Life’s average overall annual management charge across all its books is around about 1.3 per cent.
Mr Moss called modern offerings in the industry to be “very vanilla, straightforward investment type products” as opposed to products with “valuable life cover with valuable offerings and guarantees”, and so it is “absolutely justifiable to have slightly different charges where there are extra options and benefits and guarantees with them”.
Alan Lakey, director at Highclere Financial Services, said that Phoenix Life are “particularly difficult to deal with and are not transparent in many areas”, and used failure to provide any protection claims information for critical illness coverage or income protection as examples of the provider's failings.
julia.faurschou@ft.com
