The company formally proposed that alongside the existing redress system, where people must be reinstated into their old pension, insurers could simply guarantee to match whatever benefits policyholders might receive from their former schemes.
L&G's proposals were cautiously welcomed by the Securities and Investments Board, the senior City watchdog, which pointed out that provision for such a move appeared in its original compensation guidelines in 1994.
However, the Personal Investment Authority (PIA), the front-line financial regulator, played down the proposals. A PIA spokesman said they would be examined carefully, before adding: "We cannot see a significant benefit to investors from [them]. We expect firms to make substantial progress in resolving cases according to our existing guidelines during the course of this year."
David Prosser, chief executive at L&G, said adopting the new proposal would allow the long-running problem of compensating hundreds of thousands of clients to be solved almost at a stroke.
Instead of a lengthy wait while pension funds supply relevant information to insurers, policyholders would know that at retirement they would be paid exactly the same amount as if they had never left their schemes.
Mr Prosser said: "All parties surely wish to resolve the problems arising from pensions mis-selling as a matter of urgency. In our judgement, a new initiative is required if this problem is going to be resolved within a reasonable period of time.
"The nub of the problem under the current procedure is that case-by- case information has to be received from each individual concerned. This takes a long time and we can do nothing to speed up the receipt of information from occupational schemes."
Tom King, corporate affairs director at Standard Life, said that his company had relatively few cases to consider and hoped to meet the PIA's end-of-year deadline for resolving them. But he added that this depended on the speed with which occupational schemes supplied Standard Life with the information it needed.
"I am not sure why the PIA is so opposed to this. If people have something in their hands saying that a company is going to mirror the benefits they would otherwise be entitled to, what else do they want?" Mr King added.
But he pointed out that there might still be several issues to resolve, including that of tracking a person's earnings and other details so that the right pension could be paid at retirement.
L&G's proposals follow the long-running failure by insurers to meet deadlines set for them by the PIA to pay compensation to almost 500,000 people who were wrongly advised to start a personal pension.
The original date for resolving the issue was the end of December 1995. But last month, the PIA admitted that barely 7,000 people have received compensation so far.