The coalition government plans to give the Treasury powers to make compensation payments to more than a million Equitable Life members.
The reform to allow "fair and transparent" payments will come through the Equitable Life Bill announced in the Queen's Speech.
Savers lost money after the pension company's near-collapse in 2000.
Compensation will not be means-tested, the government said.
The proposed new measure is one of 22 bills announced in the Queen's Speech, marking the first set of legislation planned by the new coalition government.
The Equitable Life Bill will give the Treasury the authority to make payments to policyholders.
After the Equitable closed to new business in 2000, more than a million policyholders suffered large cuts to the value of either their prospective or current pensions as the society struggled to stay solvent.
In July 2008, the Parliamentary Ombudsman, Ann Abraham, published a report that pinpointed "a decade of regulatory failure" as being one of the main reasons for the collapse of the pension company.
In 2008, she called on the government to set up a scheme to compensate the savers for the maladministration and their losses and now she has welcomed the latest announcement.
"This is welcome news for me, but more importantly, for the thousands of individuals and families who are still enduring financial hardship as a result of the regulatory failure identified in my 2008 report," she said.
"I hope that the new government will move quickly to establish a compensation scheme that is independent, transparent and simple to administer and that will serve to overturn the injustice that Equitable's policy holders have suffered."
The coalition government's plan for compensation appears to go much further than the limited scheme previously suggested by the Labour government.
Chris Wiscarson, chief executive of Equitable Life, said: "We are delighted with the government's immediate response and look forward to working with them."
Debate will now turn to how comprehensive the new compensation scheme will be and the speed with which it will be implemented. Campaigners point out that some policyholders have died in the years since 2000.
The government later confirmed that the dependants of policyholders who have died will be in line for compensation.
The exact compensation scheme will be designed by an independent commission.
A former High Court judge, Sir John Chadwick, has been trying to design a payment scheme as requested by the previous government, and his work is ongoing.
This will be supplied to the new government by mid-July when the next steps will be announced.
"For almost a decade, Equitable Life policyholders have fought for a just resolution in relation to losses suffered as a result of regulatory failure," said Financial Secretary to the Treasury Mark Hoban.
"I am very aware of the acute concern among policyholders who have suffered loss, and the desire to achieve redress quickly. While there will be frustration at this short delay, it is important that our approach is thorough and fair.
"The government is working hard to address the situation as quickly as possible so that we can establish an independently designed payment scheme for Equitable Life policyholders that is swift, simple, transparent and fair, as recommended by the Parliamentary Ombudsman."