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Report to

                                                     Company appointed                          Member elected
THE TRUSTEE                                          Bob Armstrong OBE – Chairman
                                                     (from 8 May 2005)
                                                                                                John Binns
                                                                                                (from 8 May 2005)
AND                                                  Mike Ashworth
                                                     (from 25 August 2005)
                                                                                                David Hawksworth
                                                                                                (from 8 May 2005)
ADVISERS                                             Elaine Billington
                                                     (from 29 November 2007)
                                                                                                Stan Rennie
                                                                                                (from 8 May 2005)
The Trustee of Northern Gas Networks                 Basil Scarsella                            Stephen Roberts
Pension Scheme (NGNPS) is Northern                   (from 8 May 2005)                          (from 8 May 2005)
Gas Networks Pensions Trustee
Limited. During the period ended 31                                                             Scheme Secretary
December 2008 the Trustee Directors                                                             Steven Robson (Pensions Manager)
and their advisers were:-

Welcome to the 2008 Northern Gas
Networks Pension Scheme Trustee
Annual Report                          Chairman’s
Included in this report:

• Chairman’s summary
• Defined benefit investment report    I am pleased to provide the Trustee’s update for
                                       2008 on the Northern Gas Networks Pension
• Defined contribution
    investment report                  Scheme (the Scheme).
• Annual Funding Statement             The Scheme was established on 18 August 2005
• Membership statistics                and this summary of the full Trustee Report and
                                       Accounts covers the period from 1 January 2008 to
• News                                 31 December 2008.
• Contacts
                                       Trustee meetings
                                       During the period, the Trustee Board met four times. Attendance at
                                       the meetings by Trustee Directors was as follows:

                                       Mr R Armstrong (4/4)                Mr M Ashworth (4/4)
                                       Mrs E Billington (4/4)              Mr J Binns (4/4)
                                       Mr D Hawksworth (4/4)               Mr S Rennie (4/4)
                                       Mr S Roberts (1/4)                  Mr B Scarsella (2/4)

                                       In addition to the meetings of the Trustee, certain matters were
                                       subject to detailed consideration by Sub-Committees of the Trustee
                                       comprising Investment, Administration, Audit, Disputes and
                                       Governance. These Trustee Sub-Committees met during the year as
                                       set out below:

                                       Administration Sub-Committee: 16 April and 11 August
                                       Audit Sub-Committee:          25 November
                                       Investment Sub-Committee:     7 March, 20 May, 26 August and
                                                                     25 November

                                       There were no meetings of the Disputes or Governance Sub-
                                       Committees during the year.

                                       The issues discussed at Trustee Board and Sub-Committee meetings
                                       fell under the following broad categories:
                                       G review of investment strategy and investment performance;
                                       G monitoring of the funding position of the Scheme;
                                       G individual cases requiring discretion; and
                                       G general pensions matters, including administration.

                                       All new and prospective Trustee Directors receive initial training on
                                       their duties and responsibilities and further training for existing
                                       Trustee Directors on specific issues takes place on an ongoing basis.

Advisers                                    Auditor                                     Investment Managers
Actuary                                     PricewaterhouseCoopers LLP                  Alliance Bernstein Institutional
John Betts (Mercer Consulting)              Banker                                      Asset Management
Administrators:                             Bank of Scotland                            Fidelity Pensions Management
Defined Benefit                             Investment                                  ING Real Estate Investment Management
H S Administrative Services Limited         Hymans Robertson Limited
                                                                                        Legal & General Investment Management
Defined Contribution                        Legal
                                                                                        Barclays Global Investors
Winterthur Life                             Sacker & Partners
                                                                                        (AVC and DC section member funds only)

Advisers                                                                  Actuarial Valuation
There are written agreements in place between the Trustee and each        The latest actuarial statement issued by the Actuary, John Betts of
of the advisers shown above and also with the Principal Employer,         Mercer, reported on the position of the Scheme as disclosed by the
United Utilities Operations Limited. As part of the Trustee’s formal      valuation as at 7 December 2005. Following each valuation, the
Business Plan all adviser appointments are reviewed at least on a         Trustee puts in place a Schedule of Contributions and, as required by
three-yearly basis. In addition, the Trustee Directors review their       legislation in force at that time, the Actuary certified that these
own effectiveness, consisting of both self-evaluation and feedback        contributions were adequate for funding purposes.
from the advisers, which highlight areas for development as part of
the ongoing Trustee training programme.                                   The Trustee Directors are monitoring the funding position of the
                                                                          Scheme with the help of the Actuary and their investment adviser.
Investments                                                               The last valuation was as at 31 December 2005 and is due every
As it is one of the biggest factors determining the funding position of   three years; the next valuation was due at 31 December 2008. We
the Scheme, a considerable amount of time at Trustee meetings has         hope to issue a member communication of the results later in the
been devoted to discussing investment strategy and reviewing              year. The current funding position is shown on the Annual Funding
investment performance. Investment Reports are received quarterly         Statement which is shown on page 8.
which review the progress of the investments over the previous
three months, as well as longer time periods.                             Contributions payable
                                                                          Pension legislation requires that Employer contributions are paid on
The Scheme has two types of benefit, a final salary benefit section       a timely basis and any late contributions are treated as employer-
(also referred to as defined benefit or DB) and a money purchase          related investments until they are paid. During the period, there were
section (also known as defined contribution or DC). Details of the        no instances of late payment of contributions.
investments of the defined benefit section are shown on page 4 with
more information about the defined contribution section investment        Pension increases
fund performance on page 6.                                               On 1 April 2008, a 3.9% increase to pensions in payment and to
                                                                          deferred pension benefits was awarded. The award was in line with
Statement of Investment Principles                                        the Retail Prices Index over the twelve months to September 2007.
The Trustee has produced a Statement of Investment Principles             Since the year end the pension increase awarded for 1 April 2009
(SIP) which sets out its investment policy. The SIP also covers the       was 5%.
Trustee’s policy on the following matters:
G ensuring compliance with the current investment requirements;           Audited Financial Statements
G ensuring compliance with the current scheme – specific funding          The financial information given in this report is not the Scheme’s
  requirement;                                                            statutory accounts but a summary of information from the Scheme’s
G the types of investment, and the balance between different types        statutory accounts. The Scheme’s full financial statements have
  of investment;                                                          been audited and were given an unqualified audit opinion and an
G risk;                                                                   unqualified statement about contributions. A copy of the full Trustee
G expected return on investments;                                         annual report and financial statements can be obtained from the
G realisation of investments; and                                         United Utilities Pensions Department or by visiting the website at
G socially responsible investment.                              

A copy of the SIP can be obtained by contacting the United Utilities      I hope you find this annual report and the other pension
Pensions Department or by visiting the website at                         communications you receive both interesting and informative.The                                         Trustee would welcome your views on these communications.If you
                                                                          would like to provide any feedback please do not hesitate to contact
The Trustee Directors continue to consider compliance with various        the United Utilities Pensions Department, contact details are
Investment Principles, ensuring the way they operate is in line with      provided on page 11.
the code of best practice on pension investment. The Investment
Principles cover:
G effective decision making taking expert advice;
G clear objectives with explicit mandates;
G focus on asset allocation and activism;
G performance measurement including appropriate benchmarking,
  transparency and regular reporting.                                     Bob Armstrong OBE

Defined benefit section members -

Contributions paid by the members and the Company
                                                               HOW THE DB SECTION ASSETS WERE
into the defined benefit (DB) section of the Scheme
are invested by the Trustee for the purpose of funding         INVESTED AT 31 DECEMBER 2008
members’ benefits as they become due for payment.
                                                            Target % of investments
The Trustee has appointed a number of specialist
Investment Managers (see page 2) to carry out the                                     Property
day-to-day investments in line with the Trustee’s                                                                      UK equities
strategy. This strategy was agreed during 2007 but is                  Cash/Other 0.0%                                 (shares)
reviewed regularly to ensure it is still appropriate. All                                        10.0%
the investment managers have been set a specific                                                            22.5%
“benchmark” (or target) by the Trustee and have
agreed limits to the investment performance above
and below the benchmark. If investment performance
falls outside these ranges the manager must explain to
the Trustee the reasons why and the Trustee will                                           45.0%              22.5%
decide if any action is required. Short and long term
performance of the managers is monitored in detail by              Non-Government
the Trustee on a quarterly basis at the Investment                                                                    Overseas equities
Sub-Committee meetings. Also the managers meet                                                                        (shares)
the Trustee to report on their performance at least
once a year. The Trustee receives independent
investment advice from their investment consultant          Actual % of investments
who attends all the Investment Sub-Committees and
monitors all the investment managers.                                                    Property
                                                                           Cash/Other 0.1%
                                                                                                                       UK equities
                                                                                                    6.0%               (shares)


                                                                 Non-Government            47.2%
                                                                 bonds                                       23.0%

                                                                                                                      Overseas equities


                                Investment Manager             Investment Mandate        Target %             Actual%
                                                                                       of investment       of investment

                                Alliance Bernstein                Global Equity            20.0               15.4

                                Fidelity                             Bonds                 20.0               22.2

                                ING                                 Property               10.0                 6.0

                                Legal & General                   Multi Asset/             50.0               56.3
                                                                 Index Tracking

                                Cash                          Trustee Bank Account           0.0                0.1

The Trustee has delayed investing the full 10% of the fund into Property due to the current
uncertainty in the UK property market in line with advice received from their investment adviser.






                                                                                   Legal & General


                     -30                                              ING

                                                                                                     Actual % (1 year)
                            Alliance Bernstein

                                                                                                     Benchmark %

Table detailing the investment returns on the assets over the past 3 years measured against the benchmark:

                                                             Actual            Benchmark

                               2006                            8.8%                8.8%

                               2007                            4.8%                5.2%

                               2008                          -17.3%              -13.5%

Defined contribution section members -

Benefits from the defined contribution (DC) fund (also
referred to as your Personal Account) are determined
by the amount of contributions paid, investment
growth and the cost of buying a pension at retirement.

The investment funds currently available provide
access to the three main investment asset classes:
Equities (otherwise known as Stocks and Shares in
companies), Bonds/Gilts (loans to companies or
governments) and Cash. Performance of the funds is
measured against the managers’ ability to replicate
various investment markets (known as “index-
tracking”). The funds currently available are as follows:

                        Winterthur BGI Fund           Asset type     Investment charge           Investment charge
                                                                   (% p.a.) up to April 2008   (% p.a.) after April 2008

                        Global Equity 60/40            Equities              0.65                        0.5

                        UK All-Share Tracker           Equities              0.65                        0.5

                        Over 5 years UK
                        Index Linked Gilt            Bonds/Gilts             0.65                        0.5

                        Deposit Fund                        Cash             0.65                        0.5

More information regarding the funds, including
details of the benchmarks, together with forms for
making alternative contribution and/or investment
choices, is available from Winterthur Life (details on
page 11) or your HR department.

You may make changes to your DC investments online
via the website operated by Winterthur Life
( where you can
also view your current contributions and fund value.
Winterthur Life can also be contacted on 01256
794533 (address details on page 11) if you need help
using the website or don’t have access to a website.

The Trustee and the United Utilities Pensions
Department cannot, by law, advise you on investment
decisions. You are strongly encouraged to consider
your own circumstances when making an investment
decision and you may wish to seek Independent
Financial Advice if you are in any way unsure about the
most suitable investment options.

Investment performance for the funds offered by Winterthur Life described on the
previous page for the period to 31 December 2008 was as follows:

Winterthur BGI Fund

                                                                           Deposit Fund
                                Global Equity
                                                               Over 5 Year UK
                           -5                                  Index Linked

       12 months (%)



                                                UK All Share
                                                Tracker                                              Fund


                                                                           Deposit Fund
                           5    Global Equity
                                                               Over 5 Year UK
                           -5                                  Index Linked
                                                UK All Share
       3 years (% p.a.)


                                                                    Performance of the funds is monitored by the Trustee
                                                                    on a quarterly basis and from time to time existing
                                                                    funds may be withdrawn, replaced or new funds
                          -30                                       introduced by the Trustee. Members will be advised of
                                                                    any changes and how they are affected.
                                                                    More information regarding the funds, including
                                                                    details of the benchmarks, together with forms for
                                                                    making alternative contribution and/or investment
                                                                    choices, is available from Winterthur Life.

Defined benefits section members
Your annual funding statement

As the Trustee of the Northern Gas Networks Pension Scheme
(NGNPS), we are responsible for monitoring the Scheme’s financial
health and reporting its financial position to members. The Pensions
Act 2004 introduced this reporting requirement for trustees and
employers. This is your third annual funding statement for NGNPS
and we hope you find this statement of funding useful to help you
further understand the financial arrangements in place to support
your pension benefits.

The Scheme’s financial position
The Scheme Actuary has reported preliminary results of the formal
valuation as at 31 December 2008. The results are now subject to
discussion and final agreement between the Trustee and the

Based on the results of the actuary’s latest formal valuation at 7
December 2005, his approximate update to 31 December 2007 and
the preliminary results of the formal valuation at 31 December 2008:

                                      7 December       31 December           31 December
                                         2005              2007                  2008

The Scheme’s assets were              £164 million      £207 million          £180 million

The Scheme’s liabilities were         £192 million      £254 million          £223 million

This means that the Scheme
had a deficit of                      £28 million        £47 million          £43 million

This is equal to a funding level of      85%                81%                   81%

Why has the funding position changed over the year to 31               Until the new schedule of contributions is finalised, the Company is
December 2008?                                                         continuing to pay contributions at the rates agreed following the
The Scheme’s funding position at 31 December 2008 is similar to        2005 valuation. The key points of this are as follows:
that at 31 December 2007. Over the year, there were negative
investment returns on the Scheme’s assets. However, the                G   regular company contributions of 31.1% of members’ pensionable
deterioration in funding due to negative asset returns was offset by       earnings have been paid from 1 June 2006;
the deficit contributions made by the Company as well as changes in
the assumptions used to assess the Scheme’s liabilities (reflecting    G   a lump sum of £3.448 million each year (plus inflation) is payable in
investment market changes and expected changes in economic                 quarterly instalments from 30 September 2006 to 31 December
conditions in the future).                                                 2015.

Looking to the future                                                  There is no change to members’ contributions (or their replacement
The actuarial valuation as at 31 December 2008 has been carried out    under the Company’s salary sacrifice arrangements).
by the Scheme Actuary. The actuary has also given advice and
guidance to the Trustee around developing our funding target and       This schedule has been reviewed at the scheme’s actuarial valuation
planning contribution levels. We are currently discussing with the     carried out using information at 31 December 2008.
Company a new schedule of contributions, including a recovery plan
for the deficit reported by the Scheme Actuary as at 31 December
2008. We expect the valuation to be finalised and a new schedule of
contributions to be in place by the end of the year.

The Discontinuance position                                              Scheme documents
If the Scheme had been discontinued at 7 December 2005, the deficit      You should contact the Pensions Department if you would like to see
would have been £135.5 million, equal to a funding level of 55%. We      any of the following documents, which provide further information
look at this situation to understand the Scheme’s financial health and   about the scheme.
the extent to which this relies on the continuing prosperity of the
Company, but it does not mean that the Company is thinking of            G   The Statement of Investment Principles
ending the Scheme.                                                           This explains how the Trustee invests the money paid into the
The Company presents regular updates on its financial position to
the Trustee and the Trustee is satisfied that the Company is able and    G   The Schedule of Contributions
willing to continue supporting the Scheme.                                   This shows how much money is paid into the scheme by the
                                                                             company and the contributing members.
The Pension Protection Fund (the PPF)
The PPF was set up to compensate pension scheme members whose            G   The Annual Report and Accounts
employers become insolvent, leaving the Scheme with a deficit or             This shows the scheme’s income and expenditure and is
shortfall.                                                                   summarised in this Trustee Annual Report to Members.

Broadly speaking, if an employer becomes insolvent and cannot meet       G   The Formal Actuarial Valuation Report as at 7 December 2005 or
the cost of its scheme’s shortfall, the PPF normally aims to provide:        31 December 2008
                                                                             This contains the details of the actuary’s latest in-depth check of
G   90% of the benefits for members below normal pension age up to           the scheme’s funding position.
    an overall limit which is currently (2008/09) £27,771.00 a year at
    age 65 and lower at younger ages;                                    G   The Trust Deed and Rules
                                                                             This details the benefits provided by the scheme.
G   100% of the benefits for pensioners who are over normal pension
    age;                                                                 G   The statement of funding principles
                                                                             This explains how the Trustee plans to manage the scheme’s
G   dependants’ pensions of 50% of the member’s pension.                     finances with the aim of being able to continue to provide the
                                                                             benefits that members have built up.
Increases to PPF pensions may be lower than those of the Scheme as
increases are only paid on benefits accrued after 5 April 1997 and       G   The actuarial report as at 31 December 2007
are limited to 2.5% if inflation is higher.                                  This contains the details of the actuary’s latest check of the
                                                                             scheme’s funding position.

       we hope you find this statement of funding
       useful to help you further understand the
       financial arrangements in place to support
       your pension benefits

changes in membership


2007 DB section                                                        2008 DB section
                            Deferred                                                       Deferred
                            members                                                        members
                                29                                               Pensioners               40

                                       878                                                                     796
                                               Active members                                                        Active members

2007 DC section                                                        2008 DC section

            Deferred                                                               Deferred
            members                                                                members
                              8                                                                       8

                                        48     Active members                                                  48    Active members

, Members of the defined contribution section purchase an annuity through an
  insurance company on retirement. They do not, therefore, show as pensioners.


                                                                                         £ million
                                  Fund at 31 December 2007                               208,987
                                  Plus contributions and other income received            16,950
                                  Transfers received                                             0
                                  Less benefits paid                                       (5,412)
                                  Administration and other expenses                           (301)
                                  Returns on investments
                                  (including change in market value)                     (38,554)
                                  Fund at 31 December 2008                               181,670

                                  The figures shown above differ to those reported on page 8 because they include the amounts for
                                  the defined contribution section but page 8 figures relate to the defined benefit section only.

NGNPS - news

Investment charges:                                                     Member Nominated Trustee Directors:
Following discussions with Wintherthur Life the Pensions                At the elections for Member Nominated Trustee Directors held in
Department has negotiated a reduction in two of the investment          2006, two of the Trustee Directors were elected for a period of three
charges applied to defined contribution section members’ accounts       years and two elected for five years. This year two of the Member
for the BGI Global Equity (60:40) Fund and the Deposit Fund. The        Nominated Trustee Directors reached the end of their term and an
reduction in investment charges are with effect from April 2009 and     election process was completed. We received five nominations for
the new charges will be 0.45 percent per year (the previous charges     the two posts and the results were recently communicated to you.
were 0.5 percent which had been reduced from 0.65 percent per year).
The new rate will be shown on your benefit statement next year.

NGNPS - who to contact:
Scheme Administrators                                                   Moving house
                                                                        If you are in receipt of a pension, or have left the Company and have
Defined benefit section                                                 deferred pension benefits, please let the relevant Scheme
Day-to-day administration of the defined benefit section of the         Administrator know, in writing, if you change your address. Current
scheme is undertaken on behalf of the Trustee by HS Administrative      employees should notify their HR departments of any change in
Services Limited. HS Administrative Services monitors receipt of        personal details.
contributions, prepares the annual accounts and pays benefits on
behalf of the Trustee. You can contact HS Administrative Services at:   Expression of Wish forms
                                                                        The Trustee Directors would like to remind members of the
HS Administrative Services Limited                                      importance of completing an Expression of Wish form. The form
AEGON House                                                             informs the Trustee of members’ wishes regarding any lump sum
Daresbury Park                                                          payable on death in respect of members who are currently in service,
Daresbury, WA4 4HS                                                      in deferment or who retired less than five years ago.
Telephone: 01928 707972
E-mail:                                                 If you have not completed a form, or if your details are not up to date,
                                                                        please complete an Expression of Wish form and send it to the
Please quote ‘NGNPS’ and your National Insurance number in all          United Utilities Pensions Department for safekeeping as soon as
correspondence with HS Administrative Services.                         possible. Forms are available from your HR department, H S
                                                                        Administrative Services Limited or from the Pensions website at
Defined contribution section                                  
The administration of the defined contribution section of the scheme
is undertaken by Winterthur Life Ltd. Winterthur can be contacted at:   Additional Voluntary Contributions (AVCs)
                                                                        The majority of members pay AVCs by purchasing additional service.
Winterthur Life Ltd                                                     However if you pay through Winterthur Life during the period under
Winterthur Way                                                          review, the Trustee Board continued to monitor closely the
Basingstoke                                                             performance of the AVC funds with Barclays Global Investors. No
Hampshire, RG21 6SZ                                                     changes were made to the range of funds available for members’ AVC
Telephone: 01256 794533                                                 investments.
                                                                        If you are currently paying AVCs or are considering doing so, please
Please quote ‘NGNPS’ and your National Insurance number in all          contact Winterthur Life or check the website for more information.
correspondence with Winterthur Life.
                                                                        The Pensions Advisory Service (TPAS)
Pension scheme enquiries                                                TPAS offers a free and confidential service to provide help and
If you need any further information about the Northern Gas              advice for pension scheme members and beneficiaries in connection
Networks Pension Scheme, please write (quoting your name and            with any pension’s query they may have or difficulties they have
National Insurance number) to:                                          failed to resolve with the trustee of a scheme. TPAS is available at
                                                                        any time to assist a member and will consider their complaint and
United Utilities Pensions Department                                    appoint an adviser to deal with it, even if the complaint is being dealt
Ground Floor, Haweswater House                                          with using the scheme’s Internal Dispute Resolution Procedure. TPAS
Lingley Mere Business Park                                              can be contacted at 11 Belgrave Road, London SW1V 1RB, Tel: 0845
Great Sankey                                                            6012923 (Local Rate).
Warrington, WA5 3LP
Tel: 01925 463366
Fax: 01925 237072

United Utilities
Haweswater House
Lingley Mere Business Park
Lingley Green Avenue
Great Sankey

12                             09/09/ids569

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