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Norwich Union is to repay pension customers about £300 each after uncovering an administrative error in charges stretching back nearly a decade.
About 34,000 people who bought stakeholder pensions from the insurer after they were introduced by the government in April 2001 were affected by the error.
Charges were capped by the government at 1% a year but, as part of an overhaul of its systems, Norwich Union, Britain's biggest insurer and a significant provider of stakeholder pensions, discovered that it had unwittingly overcharged customers since the inception of the policies.
Clients who have retired and taken pension benefits will in the next few weeks be sent cheques. Those still contributing will have their pension values restored to the level they would have achieved without the error. The total bill for compensation is expected to reach nearly £11m.
The error was uncovered in a review to ensure compliance with the Financial Services Authority's forthcoming Treating Customers Fairly regime, the biggest regulatory overhaul for many years.
A Norwich Union spokesman said: "We identified the problem ourselves and acted as soon as possible to refund customers. We have kept the FSA fully informed."
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