The role of advisers and the scope and nature of their advice on the sale and purchase of BHS and the arrangements for pensions was probed in the latest session of the joint business, innovation and skills and work and pensions committee, set up to review the collapse of BHS.

The committee was told by Deloitte partner Tony Clare that BHS had been loss making for ‘seven or eight years consecutively’.  Clare headed a specialist pensions team brought in by Tavata, the vehicle for the shareholders of BHS, to work on ‘Project Thor’, which was set up to look at ways to restructure the company’s pension scheme.

MPs were told that the BHS deficit had ballooned from £61m in 2012 to some £274m by 2016, when the company completed a valuation of the scheme which has around 22,500 members, the majority of whom have benefits of under £18,000 in value. At the time of the company’s collapse, the deficit was put at £574m.

Richard Cousins, a PwC partner and pensions actuary who advised Tavata on the scheme until 2013, said: ‘From the 2012 actuarial valuation, it was very clear that the cash fundamentals were at the long end, with projections for 22 or 23 years, which was a serious concern.’

Subsequently in 2014, Tavata launched Project Thor, which according to Clare, had the aim of restructuring the BHS pension scheme such that members were offered a better outcome than they would receive under the Pension Protection Fund (PPF) rules, should BHS go into insolvency.

Under the plans, the bulk of scheme members with under £18,000 in benefits would be offered  a wind-up cash payment on a voluntary basis in line with HMRC rules in lieu of a pension, while the members with larger pension pots would be transferred to a new scheme that would offer better terms than a Pension Protection Fund (PPF) deal following insolvency.

Clare said: ‘The Arcadia group was no longer willing to support the business indefinitely, and the alternative was insolvency. Thor was one of three strands to avoid this. These were restructuring the pension scheme; the owners of BHS writing off a £200m loan; and key stakeholders supporting the move, which included landlords taking an impairment on rents.’

The committee heard that Arcadia was prepared to put in around £50m to shore up the pension scheme and that this, coupled with the proposed changes, would return the scheme to a fully funded position.

Project Thor’s proposals were the subject of ‘robust’ discussions according to David Clarke, a partner and employer covenant specialist at KPMG, who was brought in to help trustees evaluate the new scheme. ‘There were a number of examples of Deloitte’s estimated outcome analysis where we didn’t agree with some assumptions,’ he said.

The committee was told that after some months a draft proposal was agreed with the trustees and forwarded to The Pensions Regulator. However, this was subsequently withdrawn after the need for BHS executives to focus on Christmas trading meant they ceased work on the project.

The nex session on 25 May will focus on the pension trustees for BHS. The BHS joint evidence hearings will continue until mid-June.