The government should compensate Equitable Life policyholders who were hit by the pension provider's near-collapse in 2000, which left thousands of people with reduced savings for retirement.

The Parliamentary Ombudsman accused various government regulators of failing to use the powers that were available to them to safeguard the assets of policyholders.

"Those responsible for the prudential regulation of Equitable Life failed to do so throughout the period covered in my report," said Ann Abraham.

"I have alerted Parliament to the injustice which I have found in this case resulted from serial maladministration on the part of the former Department of Trade and Industry, the government Actuary's Department and the Financial Services Authority."

The new owners of Equitable Life welcomed the report and the call for the government to provide compensation, saying it had already paid out to those who were owed money.

The government is expected to take several months before responding to the call.