Eon injects £420m into UK pensions

Thousands of current and former UK employees of Eon, the German utility giant which owns Powergen, were thrown a lifeline yesterday, as the group took the unprecedented step of injecting £420m into its four flailing UK pension funds - instantly reducing their collective deficits by almost 60 per cent.

Thousands of current and former UK employees of Eon, the German utility giant which owns Powergen, were thrown a lifeline yesterday, as the group took the unprecedented step of injecting £420m into its four flailing UK pension funds - instantly reducing their collective deficits by almost 60 per cent.

In total, the pension schemes of Eastern, Midlands Electricity, Powergen and East Midlands Electricity - the UK operations of Eon - which have assets of £3.7bn, had a collective deficit of some £728m.

After Eon's one-off payment the four schemes, which are also set to be merged to save on costs, will have a deficit of £308m.

The company hopes that an increase in investment returns over the coming years will help to reduce the remainder. However, further injections into the scheme have not been ruled out.

Although Eon is a sizeable company, with a market valuation of about €45bn (£31bn), the £420m payout will still represent almost 10 per cent of its 2005 anticipated earnings.

The move is one of the largest-ever single payments into a pension scheme, and puts Eon among a small handful of employers which have elected to take responsibility for their company pension funds' troubles.

Dr Paul Golby, the chief executive of Eon UK, said: "This injection of £420m will help us to ensure the security of the pension benefits of our former and current employees.

"A special contribution on this scale goes further than many other UK companies in funding their deficits and also emphasises Eon's commitment to the UK and to all current and former employees."

Ros Altmann, a pensions campaigner and No 10 adviser, welcomed the news. "I think it's very good news - there are some large deficits out there that need to be filled. The problem is the companies that can't afford it," she said.