Chancellor George Osborne has confirmed that Equitable Life victims will get £1.5bn, with with-profits investors receiving full relative compensation for their losses.
He accused the previous government of “dithering” as the “innocent victims” waged a 10 year campaign for justice.
The payments will begin next year and two thirds of the money will be paid out over the next five years.
Osborne told MPs he agreed with Parliamentary Ombudsman Ann Abraham’s recommendations for compensation, which estimated relative losses of over £4bn, but suggested that this needed to be seen alongside the current economic climate.
He rejected the finding of Sir John Chadwick, whose report was commissioned by the previous Government and suggested that payouts should be limited to between £400m and £500m.
With-profits investors will receive the biggest payouts and will be compensated in full for their relative losses.
Treasury Financial Secretary Mark Hoban says: “The Government has 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. The previous Government spent ten years trying to find a solution to the Equitable Life scandal. We resolved the situation in just five months.
“We shall be paying in full the category of policyholders who suffered most from their losses. For other policyholders, we shall be providing a level of funding for the payment scheme that strikes a fair balance between the interests of policyholders and those of taxpayers in the current difficult financial circumstances. We need to continue the rapid progress that we have made in just five months so we can meet our aspiration to make the first payments by the middle of next year.”