Eq Life payouts could be as low as £400m

This figure is way off the £5bn the Equitable Life Members Action Group has been campaigning for on behalf of 1.5 million savers after the UK's oldest insurer collapsed over a decade ago.

Mark Hoban (pictured), financial secretary to the Treasury, announced today the compensation amount could be between £400m and £500m with payments likely to start in the middle of next year.

This figure has been calculated using Sir John Chadwick's report into the crisis, published today, and other work by actuarial firm Towers Watson.

The reports found policyholders' relative loss, comparing what their policies are worth and what they would have been worth at a better run company, were £4bn-£4.8bn.

However, Chadwick recommended compensation be capped at policyholders' absolute loss of what they might have been worth had the firm not collapsed, which is estimated at £2.3bn-£3bn.

Policyholders would only receive 25% of this capped loss but this would be reduced further because some actually gained from the maladministration of Equitable.

The report will be used to help the Government determine the level of payouts to policyholders, which will be announced in the Autumn Spending Review on 20 October.

Hoban said: "The Government is also aware that some of his (Chadwick's) findings are contentious and because of this, and the complexity of the methodology, it will reflect on his report and will listen to representations by interested parties ahead of the Autumn Spending Review.

"In addition, as the Ombudsman noted in her report, it is appropriate to consider the impact of any scheme on the public purse.

"The scheme will be a significant spending commitment for this Government and cannot be considered in isolation from the other spending decisions that it will need to make over the coming months, and what is affordable in that context."

The government also announced today an Independent Commission will work out how the payments will be made to policyholders. However, it is unlikely to report until the end of January 2011.

Hoban said Brian Pomeroy, John Tattersall and John Howard have agreed to form the Independent Commission.

Brian Pomeroy

• Brian Pomeroy was the senior partner of Deloitte Consulting until 1999, when he took up a number of public, private and voluntary sector appointments.
  
• He is currently chairman of the Treasury's Financial Inclusion Taskforce and of the Gambling Commission. He is a member of the Financial Reporting Review Panel and is a director and deputy chairman of QBE Insurance Europe Ltd. and QBE Underwriting Ltd.
  
• He is a Board Member of The Social Market Foundation and chairman of The Photographers' Gallery. He is also a board member of the FSA.

John Tattersall

• John Tattersall retired in 2009 as chairman of the Financial Services Regulatory Practice and a senior client relationship partner at Pricewaterhouse Coopers LLP.
  
• He is a former chairman of the Risk & Regulation Committee of the Financial Services Faculty of the Institute of Chartered Accountants in England & Wales.
  
• He is currently a board member of Bradford & Bingley PLC and chairman of its Risk & Compliance Committee, a board member of the Financial Services Commission in Gibraltar, and a board member and chairman of the Audit Committee of R. Raphael & Sons plc ("Raphael's Bank").

John Howard

• John Howard is a former chairman of the FSA's consumer panel. He served as chairman for a three-year term.
  
• He was a member of the Consumer Panel for over four years prior to becoming chairman and was a member of the Mortgage Code Compliance Board, until its activities were taken over by the FSA in November 2004. He was also a member of the Council of Energywatch from April 2005 to 2008.
  
• He is a non-executive director of the Financial Ombudsman Service and a non-executive director of the Board of the Gas and Electricity Markets Authority.