London & Manchester will also have to pay costs of £125,000, taking the total to £650,000.
A visit by the PIA to the group's London & Manchester Assurance, which ended last last January, identified "serious concerns" about the company's handling of the misselling review.
London & Manchester has now admitted shortcomings in the way it carried out the review before the visit.
These included not taking adequate steps to trace around 5,800 possible victims of misselling or complete assessments on a further 1,500.
The PIA pinpointed a failure to commit sufficient resources as a major factor in the group's problems in satisfying the needs of the review.
The group has now met its November 1997 deadline for sorting out priority cases.
London & Manchester is the latest in a long list of companies to have fallen foul of the regulators as they step up efforts to sort out the misselling problem, whereby people were persuaded to switch out of occupational into personal pension schemes.
The PIA has so far imposed 47 fines totalling well over £2m.
The previous largest fine was £450,000 imposed on Friend's Provident in September.
Clearing up the mess is expected to cost the industry more than £4bn. The government is keen to be seen to be taking a tough line with companies suspected of dragging their feet.