KPMG flirts with offloading UK pensions advisory wing

KPMG is reported to be exploring the sale of its UK pensions practice. The Big Four firm is mulling the divestment against a backdrop of reform across the accountancy and consulting professions, and heightened public scrutiny amid sustained accusations of conflicts of interest being levelled at companies that provide both services to clients.

2019 has turned into a major year of transition for KPMG. Under intensifying scrutiny amid a flurry of accounting scandals, the firm is now facing calls for the state to formally intervene in the audit and advisory market. Talk of the Government being forced to break up the so-called Big Four of Deloitte, EY, PwC and KPMG on grounds of conflicting interests between their consulting and accounting wings has reached a fever pitch, leaving the quartet considering how to quell the growing dissent they face.

KPMG, the smallest of the foursome, has been hardest hit by the situation, and has routinely been singled out by the UK’s accounting watchdog for its auditing standards. As a result, earlier in the year, KPMG confirmed it would restructure its UK auditing business – having already barred its firm from holding both consulting and accounting contracts for UK clients.

Now, as the international professional services giant continues to evaluate its priorities in the UK, it has been reported that KPMG is considering the sale of its pensions practice. According to Sky News, the sale could be worth as much as £120 million, and would only involve the future of the UK pensions practice, so pensions advisory practices in other countries will not be affected.

Commenting on the potential sale, a KPMG spokesperson stated, “Like any other large firm, we routinely assess the strategic fit of each business in our portfolio and as a result of this can confirm that following recent expressions of interest from third parties, we are exploring options for this area of the business.”

The source added that KPMG had “made no firm decisions over any eventual outcomes at this stage.” At the same time, however, the part of KPMG’s business has “grown significantly into a market leading business in the sector, advising both corporate clients and pensions trustees” in the past few years, and as a result the firm has reportedly regularly received “unsolicited offers” for its UK pensions practice.

According to a recent study, 37% of pension schemes are currently enjoying a funding surplus. At the same time, however, a similar number are yet to agree on a long-term target for their funds, suggesting they could be doing more to capitalise on their current momentum. The purchase of KPMG’s pensions wing could be a major inroad for another firm into an especially lucrative market, in keen need of advisory services, then.

If a move does materialise, it would echo the deal made by the UK’s sixth-largest professional services firm in June. Grant Thornton, which has been said to be under similar pressure to KPMG in the wake of proposals from the Competition and Markets Authority, and from the Kingman Review, sold its wealth advisory unit to the financial advice arm of Standard Life Aberdeen, 1825. The sale has been said to be an attempt by the firm – which drew sharp scrutiny throughout the year for its failings at Patisserie Valerie – to distance itself from potential conflicts of interest.

However, it is by no means a foregone conclusion that KPMG will indeed go through with the offloading of such a profitable line of its business. Late in 2018, KPMG was understood to have rejected informal bids to purchase its UK restructuring business, after rumours had circulated that the professional services giant was set to offload its corporate turnaround wing. In that case, the firm’s British leadership instead opted to hang on to what remains a major fee-earning operation, amid booming demand in the UK.