Phoenix Life has revealed that the 1 per cent cap on ongoing charges it plans to impose on existing workplace pensions customers will cost the business £25m.
The move follows recommendations made by the closed book life company's independent governance committee.
The cap will bring the company's ongoing maintenance charges in line with the industry-wide 1 per cent exit fee cap introduced earlier this year.
This particular cap, introduced by the then Chancellor George Osborne in 2015 to help over 55s wanting to make withdrawals from their pension funds, is estimated to cost Phoenix £10m.
In a presentation to investors, Phoenix stated the effect of the caps will be significant.
Commenting on the impact of pension freedoms on the business, the presentation stated the rule change - which freed the over 55s up from having to buy an annuity - led to a sharp increase in the encashment of smaller non-guaranteed annuity rate pension pots.
The company wrote £370m of guaranteed annuity business and £172m non-guaranteed annuity rate business in the 2016 financial year.
The average pot size for 55 plus customers with guaranteed annuities rates was £35,000, while that for non-GARs customers was £24,000.
Phoenix’s gross liabilities at £31 December 2016 stood at £74bn, with unit linked business accounting for £31bn, with-profits £30bn and annuities making up £12bn. The remaining £1bn covers other business.
Despite the hurdles presented by the 1 per cent caps, Phoenix stated it had a clear set of strategic priorities, starting with a cash generation target of £2.8bn by 2020.
It also aims to achieve synergies from its purchase of Axa Wealth last year of £13m to £15m and make significant changes to its website and communications structures.
Phoenix intends to seek future sources of growth in its annuity book by writing annuities for existing policyholders and acquiring further back books as portfolios or part of a more diverse closed book.
Nick Bamford, chartered financial planner at Informed Choice, said: “I don’t think we’ve seen any real evidence that the 1 per cent exit fee has made any real difference when it comes to people’s decisions about what they will or won’t do at 55, which surely was the point of introducing it.
“If the regulators want to address the barriers customers face they could do far worse than look at the new lifetime Isa, which comes with a far higher ‘exit fee’ than 1 per cent.”