Scottish Life is more than doubling its charge for pension loanbacks to £250 after the Inland Revenue's decision to clamp down on abuses in the market.
The Pension Schemes Office announced a review of the loanback market last November after it raised concerns that the facility was being misused.
Loanbacks allow clients to take out a loan from their pension, provided it is repaid before retirement.
But the PSO is concerned that employers in financial difficulties are taking out the loans.
It feels that life offices are failing to chase up borrowers who have defaulted on interest payments because it costs too much.
The PSO has issued draft guidance which could force life offices and IFAs to notify it within 90 days if a borro wer fails to make interest payments.
The PSO is considering imposing fines for failure to report a defaulter.
But Scottish Life believes that this will create an admin nightmare. It has raised its charge to £250 from £100.
However, other life offices, including Scottish Equitable and Commercial Union, are refusing to follow Scottish Life's move.
Scottish Life marketing manager Alasdair Buchanan says: "The changes will be very expensive and will increase the amount of admin we have to do.
"In anticipation of the full changes, we are increasing our charges."
The PSO is waiting for responses from the industry before finalising its guidance.