The Government promised yesterday not to turn a report into its handling of the Equitable Life affair into a whitewash as it came under renewed pressure to set up a compensation fund for those policyholders who lost money.

Ian Pearson, Economic Secretary to the Treasury, told the Commons Public Administration Select Committee that the Government would give detailed answers next week to a damning report into the near-collapse of the insurer by Ann Abraham, the Parliamentary Ombudsman.

Mr Pearson told the committee: “I appreciate the intense public interest. I have every sympathy for Equitable Life policyholders who feel that there has been an injustice and that it has taken a long time [since the insurer closed to new business in 2000].”Ms Abraham, who was present at the hearing, told the Government: “To disagree [with my findings] is not enough in its own right; there must be cogent reasons.”

Equitable Life was brought to the brink of collapse after the House of Lords ruled in 2000 that it must honour its obligations on policies with guaranteed annuities. It faced liabilities of £1.5 billion. More than one million policyholders lost an estimated £4 billion as Europe’s oldest mutual came close to bankruptcy.

In her report, Ms Abraham noted that neither the Department of Trade and Industry, the Government Actuary’s Department nor the Financial Services Authority had taken adequate steps to protect policyholders.

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