The British government is to extend compensation payments to Irish Equitable Life policyholders who took out pensions prior to 1992, and who were controversially excluded from a £1.5 billion rescue package announced in 2010.

The Irish pensioners will now be compensated for losing money on their investments as a result of British government maladministration which occurred in the regulation of Equitable Life.

Equitable Life, once regarded as the best-managed private pension company in the UK, ran into difficulties in 2000 when it became clear the company could not afford to pay guaranteed annuities. It was forced to honour guarantees made on older pension policies leading to cuts in the value of thousands of members’ policies.

More than one million British policyholders and more than 15,000 policyholders in other EU countries, including 6,500 in Ireland, incurred losses to their pensions, savings and investments with the near-collapse of Equitable Life insurance company in 2000.

The Equitable Life Payment Scheme was set up by the British government in 2010 to compensate policyholders who suffered financial losses as a result of government maladministration in the regulation of Equitable Life.

The government initially agreed that 1.5 million savers should be offered £1.5 billion between them. However, those who took their pensions before 1992 were excluded from this compensation payment.

Savers over 60 who took out with-profits annuities before 1992 will be given extra-gratia payments of £5,000 each.

British chancellor George Osborne said the government was under no legal obligation to make the payments: "We are doing this because it is simply the right thing to do." It is estimated policyholders at Equitable Life have lost £4.3 billion compared with holding their money with another institution.