BHS pension members reportedly could have avoided a 10% cut to payouts but the regulator blocked the plan

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A man gets a haircut at the Santovenia Asylum in Havana July 6, 2009. The asylum is run by nuns who belong to a congregation called

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BHS pensioners now face a 10% haircut to their eventual payouts.

BHS pensioners could have avoided the impending 10% cut to their pensions following the retailer's collapse but the move was blocked by the regulator, says a new report.

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The Financial Times has more details on the so-called "Project Thor" - the rescue plan for BHS' underwater pension plan drawn up by owner Sir Philip Green and his Arcadia Group.

The plan involved buying out the small members of the pension scheme who had only worked for BHS for months. They would only be entitled to a small payout eventually, but buying them out - offering them a cash lump sum instead - would reduce the scheme's long-term liabilities.

Those who didn't want to be bought out would be transferred to a new scheme that had fewer benefits, the FT reports, such as no inflation-linked increases. This again would have reduced liabilities.

The plans were drawn up in 2014 but apparently stalled when the Pensions Regulator failed to bless it. The shortfall of BHS' pension scheme must now be picked up by the so-called "Pensions Lifeboat," the Pension Protection Fund (PPF), which is the state-backed vehicle that takes on and pays out for failed schemes.

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The BHS scheme collapse will cost the PPF an estimated £275 million ($400 million). The scheme has around 20,000 members. Pensioners who have not yet entered retirement will also take a 10% haircut to their pension schemes now that it has entered the PPF. It is thought they would have got a better deal under "Project Thor."

BBC Newsnight first reported on "Project Thor" last Friday, saying the regulator had blocked it. MP Frank Field, who is chairing the joint Parliamentary inquiry into the collapse of BHS, wrote to the Pensions Regulator asking for more details:

The Pensions Regulator has already given evidence to MPs on BHS' pension shortfall and what it did to tackle the deficit in the run-up to the collapse of the retailer.

The Pensions Regulator CEO Lesley Titcomb was criticised as "not much of a regulator" by MP Richard Fuller after saying the regulator only learned of the sale of BHS last year for £1 in the newspapers - something which she was forced to clarify when challenged by Sir Philip in a letter to MPs. It turns out she was aware of sale proceedings but simply found out about the final deal in the news.

MPs also heard that the Pensions Regulator was aware of problems with the BHS pension plan as far back as 2012 but did little to tackle it. The regulator has been criticised in the press for its submissions but former Pensions Minister Steve Webb defended the watchdog to BI, saying: "There is no question that they are forensically looking at BHS. They can't say a word about that." The regulator has an open anti-avoidance case, where it is trying to claw back money from BHS' former owners.

BHS collapsed into administration last month, putting 11,000 jobs at risk. Prospective buyers are in the final stages of bidding, with Matalan tycoon John Hargreaves emerging as a front runner.

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The company was, until last year, owned by Sir Philip Green but was sold for £1 to a three times bankrupt former racing driver with no former retail experience. That deal is now at the heart of MPs' inquiries.

Parliament has announced details of a blockbuster inquiry session on May 23 that will see a huge number of people who were involved in the deal quizzed by MPs. It includes representatives from accountants KPMG, Deloitte, and PwC, lawyers Linklaters, Nabarro, and Eversheds, a Goldman Sachs banker, and multiple representatives of Arcadia and Taveta Investments, the vehicles that control Sir Philip Green's billion pound retail empire.

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