The UK’s National Association of Pension Funds (NAPF) has criticised the lobbying faced by the European Commission, after it appeared to reverse its decision to allow cross-border pension schemes to be unfunded.

James Walsh, the organisation’s lead on European Union policy, told IPE the NAPF would be very disappointed if the IORP II proposal did not include the relaxation of funding rules, as expected.

He said he suspected stakeholders had lobbied the Commission “with different views from those held in the workplace pensions area”.

In a leaked draft of the Directive, wording was included that allowed a defined benefit pension, spread across more than one EU member state, to be funded according to regulations in the home state.

This went against the legislation set out in IORP I, which requires all schemes operating across borders to be fully funded, at all times.

The proposal from the European Commission to relax this was widely welcomed by industry experts across Europe, who said it was a step towards enhancing cross-border pensions activity within the EU, one of the stated aims of the Directive.

However, yesterday, it emerged that the IORP II Directive, which is due to published on Thursday, has once again changed, with the original wording from IORP I reinstated.

Walsh said if the Commission did not amend the cross-border rules, it would be because the Directive in its current form did not include any other legislation on funding, and instead solely focused on governance and transparency.

“It’s not an argument we endorse,” he said.

The reason other solvency regulations for pension schemes were not currently included was due to significant political opposition, Walsh said.

“On the other hand, the relaxation of cross-border scheme rules would be straightforward,” he said. “It would command a lot of support from stakeholders – they could easily get it through. It’s a very different matter.”

However, Francesco Briganti, director of the European Association of Paritarian Institutions of Social Protection, jumped to the defence of the Commission.

He warned of a race to the bottom should cross-border schemes be allowed to match national regulation.

“If a particular jurisdiction allows lax funding, you could get schemes based on that situation,” he said.

“In other words, an honest regime requiring high or full funding would be penalised. The Commission has no choice but to stick to the status quo seen from IORP I. There would be unfair competition, and countries with strict regimes would lose schemes to the more lax ones.”

Views from Ireland, however, fell more in line with that of the NAPF.

Chief executive of the Irish Association of Pension Funds Jerry Moriarty said it was a strange decision that went against the purported aim of IORP II.

The UK and Ireland are home to a significant amount of the EU’s cross-border pension schemes, with 27 schemes domiciled in the UK operating in Ireland, and 16 the reverse.