Hundreds of Equitable Life investors will next week take the mutual life assurer to court in an attempt to win compensation for alleged mis-selling.

About 550-600 people have paid £1,000 each to sign up with Clarke Willmott, a legal firm which is handling the case. Paul Chapman, a senior associate at Clarke Willmott, says: “We will be issuing next week in Bristol Mercantile Court a claim against Equitable Life for mis-selling of with-profits annuities. Our position is that the risks were insufficiently explained.”

Chapman alleges that the danger of a big, abrupt cut in annuity payments was not made clear to investors. Equitable in November 2002 said more than 50,000 pensioners would endure cuts to their annuity payments of up to 30 per cent. He says: “It’s one thing to know that your income could gradually fall. It’s another to wake up one morning and find that you only get 70 per cent of your income.”

He adds that the lawyers acting for the annuitants will ask the court to calculate compensation on the basis of the other investments which investors would have made.

Clarke Willmott intends to set up insurance policies to cover the annuitants against losing the case. If they win, the legal firm’s fee will be calculated on the basis of the time it spent on the hearing.

However, Equitable Life says the case is likely to be an expensive waste of time. It says any case would be highly expensive for the annuitants, who will not win because the mutual has checked all its actions during the last three years with legal advisers and the Financial Services Authority. Even if the annuitants did win, any payment could only come out of the life assurer’s with-profits fund, so they would be cutting policyholders’ assets. Equitable says: “They will need to have very deep pockets. We believe we have very strong defences against the broad outlines of the case which we expect them to make. And we can’t understand the value of with-profits annuitants suing themselves.”

Meanwhile, it emerged this week that the FSA believes Equitable is likely to escape a wave of mass claims by investors because of Lord Penrose’s investigation into the life assurer.

The Scottish judge said in March that competitive pressures had led the life assurer into a policy of “over-bonusing” - promising more in bonus payments to investors than was justified by their underlying share of the mutual’s assets.

The FSA says: “Having undertaken our own analysis, the FSA has concluded [that] generic claims against Equitable Life regarding its basis for allocating bonuses in the 1990s are unlikely to succeed.” The FSA’s view was revealed through a change to the section of its website dealing with questions and answers about Equitable Life.

Paul Braithwaite, general secretary of the Equitable Members Action Group, criticises the way the news has been “slipped out”. He says the regulator often put confidence in the financial services industry ahead of protecting consumers.

EMAG will next week use the FSA’s annual meeting to urge the regulator to publish the analysis which led it to say that Equitable investors had no generic claims. Braithwaite says: “It is unacceptable that a regulator which is supposed to be protecting investors can make that assertion without providing substantiation.”

However, the regulator says that the questions and answers about Equitable on its website are regularly updated and it does not issue press releases about such matters, and that it is not going to publish its analysis. It says the idea that it puts confidence in the industry ahead of protecting consumers is “tosh”.

The FSA says it does not have a view about whether individual policyholders could have claims against the mutual for alleged mis-selling as a result of the over-bonusing.

Meanwhile, the Equitable Life Trapped Annuitants action group this week wrote to John Tiner, the FSA’s chief executive, urging the regulator to assess legally the life assurer’s “rectification scheme” for people with guaranteed annuities.

Vanni Treves, Equitable’s chairman, has said that policyholders’ best chance of winning pay-outs from the government lies with Ann Abraham, the parliamentary ombudsman, who investigates complaints about government departments and other public bodies. She is due to announce by July 22 whether she will open a new investigation into the life assurer and its regulation. Her probe last July dashed investors’ hopes of getting compensation when she found no evidence that the FSA failed in its regulatory responsibilities in 1999 and 2000.

The Penrose report, published in March by the Treasury, was particularly scathing about the role of the Government Actuary’s Department in the 1980s and 1990s. Ruth Kelly, financial secretary, confirmed recently that the GAD could be included within the ombudsman’s remit.