Up to 20% of policyholders in Equitable Life will receive no payout from the compensation scheme because they cannot be traced, the government revealed this week.

When announced in January 2011, the scheme promised £1.5 billion in an ex gratia payout, 10 years after the first government report into the collapsed insurer.

In 2008, the parliamentary ombudsman Ann Abraham, in a blockbusting 2800-page report, had concluded that maladministration entitled policyholders to full compensation worth £4bn.

Now a report by the National Audit Office into the scheme, which is being administered by NS&I, has found that not enough preparation work was done in the Treasury prior to the scheme going live in 2011.

The NAO says the scheme had paid out £577 million by the end of last month to 407,000 policyholders. But it still had £370m to pay out, to 664,178 customers.

NS&I estimates 7% to 9% of annuitants and 18% to 20% of investors will not receive payments as they cannot be traced, so overall up to 20% of all policyholders will not be paid. It said some 20,000 to 30,000 policyholder records provided by Equitable Life were inaccurate.

The Equitable Members Action Group complained in 2011 that its offer to provide a more up to date list of policyholder details was rejected on grounds of data protection.

The NAO says the scheme will be wound down within 12 months, even though "the Treasury and NS&I may find it hard to make these payments by April 2014 given the scale of the challenge".

The Treasury now plans to spend up to £600,000 on an advertising campaign.