Sir John Chadwick, who was appointed by the Government to advise it on the level of payouts that should be made, said he favoured a flexible approach to assessing how much policyholders had lost.

The Parliamentary Ombudsman Ann Abraham had called on the Government to set up an independent tribunal to calculate compensation for policyholders, after finding 10 instances of maladministration by regulators and Whitehall officials in the period leading up to December 2001.

But the Government rejected some of her findings of maladministration and her recommendations for compensation, instead saying it would make ex-gratia payments to policyholders “disproportionately affected” by the problems at the society.

In an interim report, published today, Sir John Chadwick said he had decided to revise his previous approach to assessing the losses suffered by policyholders after receiving representations from Equitable Life, policyholder action groups and the Government.

His previous proposal had closely reflected the approach recommended by the Parliamentary Ombudsman, but it took into account the fact that the Government had only accepted some of her findings of maladministration.

The limited level of findings accepted by the Government had caused the Equitable Members Action Group to warn that up to 90% people could be excluded from the ex-gratia payments the Government had agreed to make.

But Sir John said today he had decided to adopt a more flexible approach to assessment of losses, which would cover everyone who was a policyholder during the period affected by the maladministration which the Government has accepted.

He said he would measure the loss suffered by these policyholders in terms of looking at the position they would have been in if all of their investment in Equitable had been made in another company.

He added that the main benefit of this approach was that it would enable an assessment of loss to be made quicker and with much less burden on policyholders than other methods might involve.

Sir John has asked for any parties wishing to comment on his revised approach to do so before October 2, and he hopes to issue his next update in the autumn.

Equitable Life was brought to its knees in 2000 when it lost a legal battle in the House of Lords over the rights of its 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 £5.95 billion with-profits fund.

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