Irish Life has written to around 25,000 customers to inform them that it had mistakenly deducted Government stamp duty from their life assurance policies between 2001-2004 and that their policies will be reimbursed.

The life and pensions company said yesterday it understood a total of around €400,000 was deducted in error from the policies, which would have included certain pension and savings products containing life cover.

Stamp duty on life assurance policies was abolished in 2001, however due to a computer systems error Irish Life continued to apply the charge - set at £1 for every £1,000 of cover - to policies where customers had topped up the value of cover or where the value of the policy had increased due to indexation.

The stamp duty charge was applied to the amount of the increase and was not passed on to the Revenue Commissioners.

No new policies purchased since 2001 have been affected, a spokesman for Irish Life said.

The spokesman said the error had been detected by staff last year and that it had informed the Irish Financial Services Regulatory Authority (IFSRA). The affected customers were informed before Christmas and the value of the deductions restored to their policies.

For around 3,000 of the approximate 25,000 customers affected, the sum deducted by mistake was less than €1, the spokesman said. However the average amount taken in error is thought to be around €16.

"This was being deducted on behalf of the Government. It was not a management charge," the spokesman said.