By Andrew Verity BBC personal finance correspondent

The inquiry into the Equitable Life affair may be published as late as 2004, and may have to be released without all the relevant evidence, it emerged on Friday.

This confirms policyholders' worst fears

Paul Braithwaite, Equitable Members' Action Group

And the secretary to the inquiry has said it is still trying to obtain documentary evidence from witnesses which has not so far been forthcoming.

Thousands of Equitable Life policyholders are awaiting the outcome of the inquiry by the Scottish judge Lord Penrose before they decide whether to claim compensation.

Other inquiries - such as one by the Treasury select committee of MPs - have been suspended to await Lord Penrose's findings.

Timespan

Yet sixteen months after Lord Penrose was appointed, testimony is only now being taken from individual witnesses.

In an open letter, Hugh Burns, the secretary to the inquiry said concern over delays was "understandable, but misplaced".

"In order to produce an authoritative account it has been necessary to establish a firm knowledge of all the documentary evidence, which spans several decades, before seeking to confirm, clarify, and enhance that understanding through direct witness testimony."

Mr Burns said Lord Penrose was aiming to complete his inquiry by next summer - but there could be no absolute deadline because of the sheer weight of evidence and the difficulty of obtaining some of it.

Legal obstacles

He also said some important evidence requested by Lord Penrose had been refused by witnesses' lawyers - because it affected legal proceedings against the witnesses.

Equitable Life is suing its former auditors Ernst & Young and a number of former directors over the series of events leading to its decision to close to new business in December 2000.

Mr Burns said Lord Penrose would weigh up whether to publish without the relevant evidence - or face long delays if he waited for it.

"To the extent that we are still seeking evidence it is because of litigation. If there is material we can't get access to then clearly we have to balance that against the need to publish the report sooner rather than later."

Payback hopes

The Penrose inquiry has no statutory powers to require witnesses to disclose evidence.

Unlike the Penrose inquiry, the Parliamentary Ombudsman, which is also investigating Equitable Life, does have statutory powers.

Many policyholders are hoping for compensation from the government because of shortcomings in the regulation of Equitable Life by the Financial Services Authority, and before it the Treasury and the DTI.

However, the ombudsman is only investigating possible maladministration by the Financial Services Authority between January 1999 and December 2000.

And the ombudsman's office has said it too is awaiting the outcome of the Penrose inquiry before deciding whether to widen its scope.

Policyholder anger

In many cases, the Penrose inquiry has offered assurances of confidentiality to witnesses, promising that material will not be published - but reserving the right to reverse that assurance.

It has also promised "Maxwellisation" - a Whitehall term meaning people who are named in the report have the opportunity to object and request edits and amendments before publication. The process of negotiating amendments can take months.

Action groups have criticised the inquiry, set up on August 31 last year, for taking too long.

Paul Braithwaite, of the Equitable Members Action Group, questioned its independence - pointing out that the Treasury, which might have to pay compensation if Lord Penrose finds any regulatory failures, would also decide how much of it is published.

"This confirms policyholders worst fears that we are only likely to see a sanitised version and it probably won't be until 2004.

"Lord Penrose talks about evidence going back decades. That's a bit too much like writing a history book. - there's merit in that but what policyholders need to know is - was there maladministration?"

Reassurance

A spokesman for the Treasury denied suggestions it might suppress parts of the report if it was found to be culpable in the affair.

He said the Treasury could move the inquiry on to a statutory footing if it wished but this was "very unlikely".

"Ruth Kelly (financial secretary to the Treasury) is on record as saying that the intention is to publish Lord Penrose's report in full if possible."