It's surprisingly hard to find anything on the internet or in my protective groups book... but here's my take (and I don't have anything to back this up):
Pd/H2 is a reducing system. It pumps an electron into the aryl ring to give a radical anion. Anion collapses to give an exocyclic double-bond and generates O- and a benzyl radical. Benzyl radical and hydroxide pick up protons from solvent.
Although my protective group book has separate sections for reductive cleavage (hydrogenolysis, H2/Pd) and reductive cleavage (single electron, Li/NH3), so maybe the two are different mechanisms?
something like this, maybe...
edit: mechanism probably wrong... For the mechanism to be correct, it should be lithium donating an electron (as in the Li/NH3 debenzylation)