Standard Life policyholders have a difficult decision to make on June 27th. Should the life assurer demutualise and become a publicly-quoted company owned by shareholders or should it remain a mutual owned by its policyholder members? It is a decision that the members of mutuals Scottish Provident and Equitable Life may also face in coming months.

Their decision is made all the more difficult by the lack of standard industry figures on terminal bonuses upon maturity for with-profit life assurance policies and the discretionary way both annual bonuses and terminal bonuses on these policies are set by individual life companies.

For some policyholders a decision may be very straightforward - a certain payout now will be more attractive than the wait to see how much their life assurance policy will eventually produce on maturity which could be more than 10 years away. They will take the bird in the hand approach.

Even though the exact amount of any Standard Life payout will not be known for up to two years - the length of time it would take to bring the company to the market if a decision to demutualise is made - some members will prefer to know that they have a payout coming which they can decide what to do with. Other members may wrestle with any decision to abandon the principle of mutuality - where an organisation is run on a one-member, one-vote basis and funds are invested and built up over time for all members, including future members. There are no shareholders who must receive dividends.

Some members will want to try to make a reasoned financial decision. They will want to try to work out which option would be the best for them in terms of hard cash. But the bad news is that is next to impossible - because it is in the territory of forecast, guesstimate and extrapolation of historic figures. They need to compare the likely future value of shares they will get in about two years with the possible reduction in the maturity value of their policies which will arise from having to divert some of the company's profits to pay dividends to shareholders.

Some funds would be set aside to protect future payments at maturity to existing policyholders, but there is no guarantee that this would be adequate. And where existing policyholders add incremental payments to existing pension and savings policies, often done in line with salary increases, the maturity value on these incremental policies could suffer from the diversion of funds to shareholders.

So members have to weigh up the possible gain from an increase in the value of their shares against any loss from a lower payout in the future (it could be 20 years away) on their with-profits life policies. Figures from the various sides in the argument can be made to say, more or less, whatever they want depending on the values they use in their projections.

When a mutual life assurer decides to demutualise qualifying policyholders get a one-off payment in shares representing their stake in company. These shares can be sold for cash on the stock market or held as an investment. The new shareholders will be banking on the value of those shares increasing over time.

But when they are voting on the demutualisation issue, they will not know the value of the shares they will get. This will depend on a number of factors including the distribution scheme the board adopts for demutualisation (how the payout is scaled between members), the value of the company at the time of demutualisation and the state of stock markets at that time.

So, arriving at a payout figure is difficult and forecasting its value will depend on the performance over time of the stock market on which the shares are quoted.

Mr Fred Woollard the Australian leading the charge for demutualisation, has put a value of about £15 billion sterling (€25 billion) on the company. He says members will get average payments of about £6,000 sterling each.

His valuation is based on the price paid by Lloyds TSB for Scottish Widows inflated to take account of the larger size and stronger capital base of Standard Life. His payout figure is based on dividing his valuation by the number of members who will get a payout and a minimum payment of £500.

Standard Life has taken a "theoretical" valuation of £12 billion - theoretical because any demutualisation would be dependent on stock market levels in two year's time.

On that basis and taking a minimum payout figure of £250, it estimates that about half its members would get less than £2,500 sterling, with one in five getting £6,000 or more.

Standard Life's argument is that one-off windfalls of uncertain value, payable in some two year's time, do not justify demutualisation and its members can look forward to high returns in the future as a direct result of continuing mutuality.

Mr Woollard's argument is that demutualisation would make all members better off because the payouts, even at levels much lower than his £6,000 figure, would outweigh any fall in the future maturity values of their policies.

Herein lies the real difficulty for members trying to make a financial decision. Because annual and terminal bonuses on life policies are set at the discretion of their life assurance company each year, it is virtually impossible for members to calculate accurately now how much their policy will be worth at maturity.

There are two types of with-profit policy: the traditional policy with annual or reversionary bonuses and terminal bonuses and the newer unitised policies which are easier to value.

However, there is no industry standard for unitised with-profit or traditional with-profit terminal bonuses. The last survey on payouts was in January 1998 and, in any case, all life companies warn that historic performance is not a guarantee of future performance.

Different companies treat bonuses in different ways with some scaling back annual bonuses in favour of larger terminal bonuses and other taking the opposite approach. And some companies hold back some of their annual investment profits to build up a surplus fund, which can be used to even out annual bonuses in poor investment years or to boost terminal bonuses.

When a mutual demutualises, its members become shareholders. The company will then have to pay out some of its profits to shareholders as dividends each year. As a mutual, these profits would have been set aside for members as annual and terminal bonuses and in some cases as a fund to even out future bonuses.

Currently, life companies pay out about 10 per cent of their profits as dividends. That means this portion of profits is no longer available to increase policyholders funds, which is why the maturity value of policies in demutualised companies would be lower than if the company remained a mutual. But it is worth noting that where a life company is performing strongly as a plc, 90 per cent of a bigger profit pool could mean a greater amount for policyholders than 100 per cent of a smaller profit figure. So the future performance of the demutualised company will be an important issue. For this reason there are a number of other issues that members need to consider.

Is the management of their mutual capable of making the transition to managing a publicly quoted company?

Some mutuals have had a more insulated existence and can take a longer-term view because there are no shareholders demanding share price performance and dividends. Although this is changing rapidly, management needs to be able to able to make the transition to a more aggressive environment where many stakeholders must be satisfied.

Members need to ask whether there are strong management systems and financial controls in place and whether the board has mapped out a coherent future strategy.

If the company raises funds on flotation, it is important that the board has a considered plan on how this will be used. Often access to capital to fund expansion is given as a reason for demutualising. But where the capital raised is not used or is used unwisely, shareholders' interests are damaged.

In this context it is important to establish what is the best structure - mutual or otherwise - to enable the organisation to achieve its business plans.

Mutual members are faced with weighing up their allegiance to the principle of mutuality together with expected future policy payouts against immediate payouts. It is not a decision to be taken lightly.