Equitable Life policyholders will start to receive compensation payments from the end of June this year, says the Treasury.
A fund of approximately £1.5 billion has been allocated to cover the losses of policyholders.
Roughly £775 million of this will cover some of the losses suffered by with-profits policyholders, while £800 million will pay for other policyholders' full losses.
Mark Hoban, financial secretary to the Treasury, says the repayment process has been "designed to reflect the principles of fairness, transparency and simplicity," although he admits it's a "complex issue".
How the scheme will run
The scheme, which will be run by National Savings & Investment, will pay out the oldest policyholders first, followed by the estates of deceased policyholders.
Customers will be notified by letter within the next year of how much they stand to receive.
However, those that aren't eligible for compensation won't receive any notification. Customers who suffered losses of approximately £10 and less won't receive anything due to administration costs.
To be eligible for compensation, policyholders must have bought a conventional with-profits scheme or with-profits annuity between 1 September 1992 and 31 December 2000. Or an accumulating with-profits policy (both individual and group) started within the same timeframe or have had a premium payment made into it between 1 January 1993 and 31 December 2000.
Customers don't need to contact the scheme and those living abroad are still eligible for compensation.
More details can be found on equitablelifepensionscheme.independent.gov.uk.