The overall process is likely to take around three years, but the first letters will be sent out in June telling policyholders how much they can expect.
Elderly policyholders and the estates of deceased customers are first in line for the tax-free payments, which will be made several days after the letters go out next month.
The Equitable Life payment scheme was put together after the government announced last year that 1.5 million policyholders who lost money following the near collapse of Equitable would receive redress totalling 1.5 billion.
The figure was more than three times the pay-out recommended in an independent review by Sir John Chadwick, but paled in comparison with the 4.5bn loss that campaigners claimed customers had suffered.
Around 945,000 with-profits policyholders will receive redress equating to just 22.4 per cent of the amount they might have expected had they invested with a different insurer. Another 100,000 people due compensation of less than 10 will receive nothing.
Mark Hoban, Financial Secretary to the Treasury, said: "This is a complex issue, but the scheme has been designed to reflect the principles of fairness, transparency and simplicity. When payments start in the middle of this year it will be a huge milestone for the policyholders who have waited so many years for the resolution of this matter."