Reward means much more to us than just pay and in 2005 we began a journey to develop 'the Employee Deal', which encompassed reward (pay and conditions), wellbeing, training, learning and development, and career. We achieved many things under the Employee Deal during 2006, which are described in the relevant sections above.

Over recent years, E.ON UK has acquired a number of companies, all of which brought with them their own terms and conditions of employment.

During 2005 and 2006, we were involved in lengthy discussions with our Trade Unions, with a view to standardising the pay and benefits we offer our people under the umbrella of the Employee Deal. These negotiations culminated in a proposal in 2006 to introduce a Company-wide pay and benefits package. The proposal was subsequently rejected in an employee ballot, but the principles and philosophy behind the Employee Deal continue to be supported by the Company. Therefore, we are continuing to work with our recognised Trade Unions and have embarked on a programme within each of our businesses to harmonise terms and, simplifying our approach to reward and supporting our performance-based culture.

In addition, we have introduced a flexible benefits scheme called 'My Choice' for our most senior employees, which allows them to chose from a range of options to create a package which best suits their requirements, for example, trading part of their package for more holiday, childcare and retail vouchers, or travel and medical insurance. We are now developing plans to launch the scheme Company-wide.

Pensions

We have one main pension scheme called the E.ON UK Group of the Electricity Supply Pension Scheme (ESPS). The scheme has seven benefit categories predominantly providing final salary (defined) benefits with a small proportion of members having money purchase/defined contribution benefits. The benefit category new employees enter is a career average retirement balance arrangement called the E.ON UK Retirement Balance Plan, which is still of defined benefit structure by nature but works differently to a final salary scheme. It is an extremely competitive and flexible scheme, allowing employees to save for their retirement. There is also one other small historical pension scheme in operation but it is hoped that this will be merged into the E.ON UK Group of the ESPS during 2007.

The E.ON UK Retirement Balance Plan is open to all employees without restriction, as soon as they join the Company. This plan shares the risks between our Company and our employees - at a time when many companies are closing their final salary schemes in favour of schemes that place the risk entirely with the employee.

The obligations to pay the benefits are met exclusively from the assets of the E.ON UK Group of the ESPS, which are separately ring-fenced from the assets of E.ON UK plc under an irrevocable Trust and managed by a Corporate Trustee body (consisting of both member-elected and Company-appointed Directors) on behalf of the members and beneficiaries. The funding of the Scheme is, however, the responsibility of our Company as the principal employer.

As at 31 March 2006, the value of the assets of the E.ON UK Group of the ESPS was £4.92 billion. The estimated value of the liabilities was £5.00 billion, giving a funding value of 99% on an accounting basis.

Our pension scheme is almost fully funded. We are committed to further contributions to fill the remaining small shortfall although this could be met from higher than anticipated investment returns.

The contribution rates vary depending on which benefit category of the scheme an employee belongs. The largest proportion pay a rate of 6% of pensionable salary with a corresponding employer rate of 17% of pensionable salary.

At the end of 2006, around 60% of E.ON UK employees belonged to a pension scheme.

The Company is putting processes in place to improve this figure, including an improved communications plan for new and existing employees and by giving all employees not currently in a pension scheme a window of opportunity to join.

Share option and profit share schemes

After 12 months' service, employees can participate in our share incentive schemes and, as at the end of 2006, around 40% of our eligible employees had taken up the opportunity.