Compensation for the estimated 6,500 Irish investors in the group is likely to take years and be low, if it happens at all

What are the prospects for policyholders, the victims of the long-running Equitable saga, following the recent decision that the mutual insurer has dropped its legal action against its former auditors, Ernst & Young?

Long-suffering investors' hopes that the court case would boost funds by the £750 million (€1,099 million) being claimed in damages were dashed. Equitable now faces a legal bill of around £30 million. The claim had already been scaled down from an initial £2.6 billion.

"For three-and-a-half years Vanni Treves, Equitable's chairman, held out that he was going to inject billions. Instead, he has left policyholders with a big bill," says Paul Braithwaite, general secretary of the Equitable Members' Action Group (Emag). "The only beneficiaries have been the lawyers."

"They were pursuing a case that was destined to fail," adds Paul Weir, founder of the Equitable Late Contributors' Action Group, representing people who took out policies after September 1998.

"They pursued Ernst & Young for failing to tell the board something they already knew. The fact that the policyholders didn't know - that was the real issue."

In 2000, the British House of Lords ruled that Equitable must honour its costly guaranteed annuity rate policies, a decision that led to lower bonuses.

What happens now that the legal action against the auditors has been abandoned?

Equitable is still pursuing the 15 former directors of the insurer but, even if they have indemnity insurance and are found to have been negligent, this is unlikely to produce much compensation.

In any case, the growing consensus is that the two sides will reach a settlement rather than pursue the issue through the courts.

Emag is pursuing the UK government and the financial services authority for failing to regulate the insurance industry adequately. The action group has already forced the parliamentary ombudsman to launch a second, more wide-ranging review of the regulatory regime in place during the period of the insurer's financial decline.

Earlier this month, Emag won the backing of MEPs on the petitions committee of the European Parliament for an inquiry into its complaint. The action group hopes that this will lead to the European Commission taking legal action in the European Court of Justice against the UK government for failing to implement its insurance directives.

It wants the court to force the UK government to compensate up to one million past and present Equitable policyholders. These include an estimated 6,500 Irish residents, who suffered heavy losses on their pensions investments.

The commission confirmed recently that it would oblige the UK government to treat Irish investors on the same basis as UK customers, restoring hopes of compensation for Irish residents who lost out as a result of the crisis at the mutual insurer.

But is Emag's latest approach likely to be any more successful? Tom McPhail, head of pensions research at Hargreaves Lansdowne, a firm of financial advisers, has his doubts. "Even if the UK government is forced to take action, it is unlikely that the amounts available would be very generous and would take years to come through," he says.

For people wondering whether they should keep their investments with Equitable, he says: "I am surprised that so many people have kept so much money in for as long as they have. At every turn, the people who have got out have been better off for doing so."

If you are close to retirement and most of the benefits of your investment have already accrued, you should stick with Equitable, he suggests. If you are approaching a spot guarantee date when you can get your money out without penalty, you should also stay in.

"But if you are 20 years from collecting your pension, I would struggle to see any merit in staying in. People who came out two years ago have probably made enough in investment returns to make up for any penalty," says McPhail.