Policyholders who lost money in Equitable Life will have to wait until next year before they receive any compensation, the Government said today.
The Treasury also warned the overall size of the compensation fund would be considered "in the light of what is affordable" as part of October's spending review.
It is also possible the final redress pot could be just one tenth of the sum that policyholder action groups estimate Equitable members have lost (see the Pension MoneySaving guide).
About a million policyholders saw up to half the value wiped off their retirement savings after Equitable admitted it could not afford to pay out bonuses it had promised.
The news came as Financial Secretary to the Treasury Mark Hoban introduced a bill to Parliament which will enable compensation to be paid to policyholders.
He also announced details of the Independent Commission which has been set up by the Government to advise it on the best way to allocate payments to people who lost money in the society.
Hoban said the commission would start work imminently, so it could begin making payments as soon as possible, but added it is not expected to report back until the end of January next year.
As a result, policyholders are not expected to learn how much they will receive until later in 2011, which will be nearly three years after the Parliamentary Ombudsman first called for people to be compensated.
Hoban also revealed details of the final report by former Appeal Court judge Sir John Chadwick, who is advising the Government on the level of compensation that should be paid to members of the society.
Sir John found the relative loss suffered by policyholders - the difference between the returns they actually received from Equitable and the ones they would have got if they invested in a comparable product with another insurer - were between £4 billion and £4.8 billion.
But the Parliamentary Ombudsman recommended that the relative loss should be capped at the absolute loss people suffered at Equitable due to cuts made to their policies, which gives a figure of between £2.3 billion and £3 billion.
However, Sir John is recommending that people receive only between 20% and 25% of the capped figure, giving a final loss of between £400 million and £500 million, once other factors are also taken into account.
The sum falls well short of the £5 billion that the Equitable Members Action Group (Emag) has calculated policyholders are collectively due.
But Hoban stressed today that Sir John's report was "just one of the building blocks" in resolving the issue of compensation, and that there were "other judgments to be made in determining the final shape of the scheme".
He added that the Government was also aware that some of his findings were contentious, and it would listen to representations from interested parties ahead of the spending review.
Emag branded the report an "absolute shocker" and said it was "profoundly disappointing".
It added that when the Independent Commission came to distribute the compensation, it would probably be "divvying up an inadequate sum".
The Parliamentary Ombudsman called for policyholders to be paid redress after finding 10 instances of maladministration by regulators and Whitehall officials in relation to Equitable in the period leading up to December 2001.
The previous government had rejected many of the Ombudsman's findings and said it would make ex-gratia payments to people who had been "disproportionately affected" by the problems at the society.
Equitable Life was brought to its knees in 2000 when it lost a legal battle in the House of Lords over the rights of policyholders, forcing it to close to new business.
Worth £26 billion in its prime, it now has around 200,000 with-profits policyholders and a £5.54 billion with-profits fund.
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