William Kay: In a mutual world of saints and sinners, investors must take charge

A rubicon has been crossed. While most of the attention this week has focused on how Equitable Life got into its present mess, the implications of Lord Penrose's report go far wider. I believe that mutuality and with-profits will never be seen in the same light again.

These two concepts, laudable in themselves, have so far crucially relied on investors and savers putting their trust in the managers of mutual organisations and with-profits funds. That was fine in a simpler era, when such services were the main outlets for savers of modest means and knowledge.

I am not claiming that such people do not exist today, but there are many more ways of catering for them. There is also greater vigilance by regulators and the media. But all the vigilance in the world is worthless if managers are determined to conceal the truth.

Roy Ranson, Equitable's chief executive and head actuary during most of the years when it became degraded, admitted to being an autocrat and was described by Penrose as manipulative. Can the rest of Britain's mutuals - insurance, friendly and building societies - put hand on heart and say there are no more Ransons among them?

The fact is that the mutual structure is a breeding ground for such deviants, and a strong streak of saintliness is required to resist the temptation to keep all the power in one pair of hands. Happily, there are a good number of saints in the mutual ranks, too.

I do not say the answer is to abolish mutuals. That would be to throw out much value, and a form of undertaking which millions of customers prefer. But they must be made more transparent. It should not be possible to block dissent ruthlessly, as Standard Life and Nationwide and Chelsea building societies have done in recent years.

And the same goes for with-profit endowments, which have been rightly castigated this week by the House of Commons Treasury Select Committee.

Just as the mutual concept has been corrupted, so the discretion accompanying the management of with-profit funds has also led to distortions. Mr Ranson used that discretion to boost published bonuses as a marketing tool. Competitive forces have led others to "over-bonus", in the jargon, but they have at least given themselves the cushion of adequate financial reserves to fall back on.

Unfortunately, all this has coincided with the habit of endowment providers to promise that those bonuses would do more than was ever intended to bridge the gap between slimline guaranteed sums assured and the mortgage needed for eager borrowers to acquire their dream house.

And that is where you, the customer, come in. As Sean O'Grady explains on page 16, you have to take an interest in the activities of whatever mutual you use. Ask questions. Turn up at annual meetings. Be awkward. After all, it's your savings at stake.

* In her speech to the House of Commons on Equitable this week, the financial secretary to the Treasury, Ruth Kelly, took the opportunity to boast that Britain was the first country to write education into the statutory obligations of its financial regulator, the Financial Services Authority (FSA).

That may be so, but fine words butter no parsnips. All the bragging and all the committee seats in the world will not educate a single adult or child a centimetre further in the ways of money.

If Ms Kelly wants to do something practical about financial education she should persuade her boss, Gordon Brown, to give Charles Clarke, the Education Secretary, the resources to improve Britain's understanding of money. Then we might have fewer Equitable and other scandals.

Now, it's all down to the Chancellor

I said recently that we were coming into a testing period for the public's confidence in the savings industry. The Financial Service Authority's split-capital investment trust summit, the Penrose report into Equitable Life and Gordon Brown's Budget would all raise questions.

Two down, and trust is sagging. The split-capital managers have been given until Tuesday to come up with proposals to compensate their victims: they have so far been grudging. And the £79 cost of the 818-page Penrose report is a small price to pay to see under the bonnet of possibly the worst-managed of Britain's mutual insurers, Equitable. You may never want to save again.

The Treasury Select Committee's report into the mis-selling of endowment mortgages adds to the misery with its discovery of "a commission-driven culture ... with insufficient appreciation of its long-term duty to customers".

So it's all down to Mr Brown. A more flexible pension regime will help, as will the forthcoming Child Trust Fund. But in the end I believe the state pension needs to be supplemented with a compulsory savings scheme, with cast-iron government guarantees. There is an urgent need to get out of the debt habit and into the savings habit.