100,000 Equitable Life investors will not receive a penny

Treasury minister Mark Hoban told MPs that about 945,000 with-profits policyholders at the society will receive redress equal to just 22.4 per cent of the relative amount they have lost due to the problems at the society. The figure is based on a percentage of what they might have expected had they invested with another life insurer.

Ministers were warned that campaigners were "digging in for the long fight" to win more.

The problems date back to 2000 when Equitable Life, Britain's oldest mutual assurer, nearly collapsed after the House of Lords ruled it should honour tens of thousands of unprofitable policies sold in the 1980s.

The decision left it with a 1.5 billion liability and Equitable closed to new business before selling its assets to Halifax, which is now part of Lloyds Banking Group.

It is estimated that policyholders at Equitable Life have lost a total of around 4.3bn compared with the total had the money been invested in another institution.

While in opposition the Conservatives made great play of the Labour government's failure to come up with an acceptable scheme.

After becoming Prime Minister, David Cameron made it clear that resolving the issue would be an early priority.

The Conservative-Lib Dem coalition government had previously announced that 37,000 policy holders who are trapped at the society would be compensated for their losses in full, with the money paid in regular instalments for the rest of their lives.

The decision left about 775 million of the 1.5bn allocated for compensation to be shared out among the remaining one million policyholders.

Losses will be assessed on a per policyholder, rather than a per policy, basis and the payments will not be means-tested.

Compensation will be paid to the oldest policyholders first, as they are likely to be the least able to afford to wait for the money.

The estates of deceased policyholders, and those of people who die before receiving a payment, will also be prioritised to reflect the fact that their beneficiaries are likely to be vulnerable.

The recommendations were put forward by the Independent Commission on Equitable Life and have been accepted by the government.

The government will publish its final compensation timetable in the spring and the payments will be made over the next three years.

Mr Hoban said: "We have always been committed to making fair and transparent payments to Equitable Life policyholders, through an independently designed payment scheme, for their relative loss as a result of regulatory failure."

But the Equitable Members Action Group said the final compensation arrangement amounted to just 15 per cent of the losses suffered and made it clear the government had failed to draw a line under the issue.

In a statement it said: "We are digging in for a long campaign to get the rest. This will do nothing to restore any confidence in the security of people's pensions."

The campaign began when the insurer was forced to close to new business in 2000 after losing a High Court decision.