Retirement Planning Workbook

70. (b) Any advice that would be in conflict with financial products/services industry's business interests 71. (c) It decreases the debt servicing burden of forex loans of a nation. 72. (c) Financial Planner Code of Ethics and Professional Responsibility 73. (b) Market capitalization and liquidity 74. (b) Referring the client to other professionals for certain duration with transfer of liability 75. (b) owe the client all due services meant to be fairly provided, without prejudices and with proper balance of interests 76. (d) she should withdraw the amount as the PPF account is non-transferable, nor a nominee can continue the account 77. (d) higher tax liability 78. (a) Higher than expected inflation 79. (d) increased standard of living 80. (a) concentrating on maximizing returns from corpus after retirement to leave a sizable estate 81. (b) A rising trend in the interest rates 82. (c) Take an analysis of the minimum amount with which all other goals can be achieved so that maximum sums can go towards retirement goal 83. (d) maintain the same standard of living in the future by utilizing investments 84. (b) Higher rate of interest due to higher inflation would give better compounding effect and hence a sustainable corpus. 85. (b) 86. (a) 87. (d) wages last drawn by him CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 51

PRACTICE QUESTIONS – I Questions on The Payment of Gratuity Act, 1972 1. An establishment had 9, 10, 11, 20, 21, 9 and 8 employees in the years 1998, 1999, 2000, 2001, 2002, 2003 and 2004. Are the employees of that establishment covered under the Payment of Gratuity Act, 1972: (a) Since 1999 (b) Since 2000 (c) Since 2001 (d) Not now covered. 2. What is the minimum number of employees in an establishment for it to come under the purview of the Payment of Gratuity Act? (a) 20 and above (b) Above 20 (c) 10 and above (d) Above 10 3. What is the maximum amount of gratuity payable as per the payment of gratuity (amendment) act 2019? (a) Rs. 3,50,000 (b) Rs. 20,00,000 (c) Rs. 5,00,000 (d) No ceiling. 4. How much amount of gratuity is payable for each year of completed service to the monthly rated employees? (a) 15 days’ wages (b) Half a month’s wages (c) 20 days’ wages (d) None of the above. 5. Wages for the purpose of gratuity payment as per the Act means: (a) Basic Pay (b) Basic Pay and Dearness Allowance (c) Basic Pay, Dearness Allowance, City Compensatory Allowance and House Rent (d) Emoluments including all allowances, bonus and commission etc. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 52

6. Can an employer have an arrangement to pay gratuity higher than that prescribed under the Act? (a) No (b) Yes, but always within the prescribed ceiling on the maximum amount (c) Yes, but always at the prescribed rate for each year of completed service (d) Yes, at the same or a higher rate and with or without the prescribed ceiling. 7. As per section 4A of the Act, insurance of gratuity liability is currently NOT compulsory: (a) For employers employing less than 500 persons and not having an approved gratuity fund (b) For employers employing 500 or more persons and not having an approved gratuity fund (c) For employers employing 500 or more persons and wish to establish now an approved gratuity fund (d) For all employers covered under the Act irrespective of the number of employees being more or less than 500. 8. What is the maximum Tax Free gratuity in case of: (i) Gratuity payable to Govt. employees: (a) Full amount (b) Rs. 5,00,000 (c) Rs. 10, 00,000 (d) None of the above (ii) Tax free Gratuity payable to other than Govt. employees who are covered under the payment of gratuity (Amendment) Act, 2019 : (a) Rs. 20,00,000 (b) Full amount if gratuity is paid as per the limitations prescribed in the Act: (c) Maximum Rs. 3,50,000 (d) None of the above (iii) Tax free Gratuity payable to employees not covered under the Act: (a) 15 days’ terminal wages for each completed year of service with a ceiling of Rs. 20,00,000 (b) 15 days’ average wages of the last 10 months for each completed year of service with a ceiling of Rs. 20,00,000 (c) Half month’s terminal wages for each completed year of service with a ceiling of Rs. 20,00,000 (d) Half month’s average wages of the last 10 months for each completed year of service with a ceiling of Rs. 20,00,000 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 53

9. For monthly rated employees, to determine the amount of wages for one day for calculation of gratuity amount, the month is reckoned of: (a) 30 days (b) 26 days (c) 31 days (d) 365 / 12 days. 10. Mr. Anil joined a private company on 1st day of September 1981. He retired from the services on 30th March 2020 at Superannuation age of 60 years when his monthly emoluments were as under: Basic salary Rs. 7,000; Dearness allowance Rs. 3,000; City Compensatory allowance Rs. 1,000; House rent allowance Rs. 5,000. During the period of service, he had availed without pay leave of 4 months. The company pays gratuity as per the provisions of the Payment of Gratuity Act, 1972. Mr. Anil is entitled to get the gratuity amount of: (a) Rs. 3,50,000 (b) Rs. 2,19,231 (c) Rs. 2,25,000 (d) Rs. 3,28,846. 11. Mrs. Neena joined a company on 15th March 2019 and died in an accident on 30th September 2019. The company pays gratuity as per the Payment of Gratuity Act. Her terminal monthly wages was: Basic salary Rs. 4,000; Dearness allowance Rs. 3,000; City Compensatory allowance Rs. 500; House rent allowance @25% of the Basic salary Her nominee would get as gratuity an amount of: (a) Rs. 4,615. (b) Rs. 4,903. (c) Rs. 4,038. (d) Nil. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 54

12. An employee joined in the year 2008 in a sugar mill covered under the Gratuity Act. After working all the years as a seasonal employee up to the year 2019, he retires with the following monthly salary: Basic salary Rs. 2,000; Dearness allowance Rs. 1,000; House rent allowance Rs. 500. How much amount of gratuity is payable to him? (a) Rs. 11,308. (b) Rs. 9,692. (c) Rs. 8,400 (d) Rs. 20,769. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 55

ANSWERS TO PRACTICE QUESTIONS – I The Payment of Gratuity Act, 1972 Answers Solution / Description 1(a): The establishment is covered under the Act from the year in which there are 10 employees and remains covered there after even if the number of employees goes below 10 in subsequent years. 2(c): If minimum 10 employees are working in an organization, its employees are covered under the Payment of Gratuity Act, 1972. 3(b): Maximum amount of gratuity payable as per the Act is Rs. 20,00,000. 4(a): The monthly rated employees are entitled to get 15 days’ terminal salary as gratuity for each year of completed service. 5(b): Wages include basic pay and dearness allowance, if any, AND no other allowances. 6(d): Higher benefit of gratuity can be paid by any employer. It should either be at the same rate without ceiling; or at a higher rate with or without ceiling of Rs. 1000,000. 7(d): Since the provisions of Section 4A are to become applicable only on Gazette Notification by the Central Government specifying its date, the said section is not yet applicable as no notification has so far been issued by the Government. 8(i)(a): Gratuity payable to Govt. employees is fully exempt from the Income Tax under Section 10 (10) (i) of the I.T. Act.. 8(ii)(a): Gratuity payable to other than Govt. employees strictly as the provisions of the Payment of Gratuity Act with a ceiling of Rs. 20,00,000 is fully exempt from the Income Tax. 8(iii)(d): Gratuity payable to other than Govt. employees in any other manner i.e. higher or better benefits than those prescribed under the Gratuity Act is exempt from the Income Tax to the extent as under: Half a month’s wages for each year of completed service subject to maximum of Rs. 10,00,000. For the purpose of tax exemption, average of the last 10 months’ wages is to be taken. It is not 15/26 method. Half a month’s wages mean one half of the monthly wages. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 56

9(b): As per the Act, month is to be reckoned of 26 days. To work out one day’s salary, monthly salary is to be divided by 26. The logic behind it is that an employee earns his monthly emoluments after working for maximum 26 days in a month on account of minimum of 4 Sundays falling in a month. This amendment in the Act was made on the basis of an earlier Judgment of the Supreme Court. 10(c): Solution: First step is to calculate the period of service put in by Mr. Anil. Leave of any type is not deducted from the service period. Hence, deduct date of joining service from the date of retirement: (i) Period of service = 30-04-2014 (–) 01-09-1975 = 29-06-38 = 39 years (since more than 6 months is taken as one full year) Second step is to calculate the last drawn salary. As per the Act wages or salary means Basic plus DA. (ii) Last drawn salary = Basic salary + DA = Rs. 7000 + Rs. 3000 = Rs. 10,000 (iii) Now work out the amount of gratuity = Solution: = Rs. 2,25,000. 11(c): Calculate the period of service put in by Mrs. Neena up to the date of her death. (i) Period of service = 30-09-2017 (–) 15-03-2017 = 15-06-00 = 1 year (since more than 6 months is taken as one full year). In case of death, minimum service condition of 5 years is not applicable. Hence, gratuity is payable in this case. Now calculate the last drawn salary. (ii) Last drawn salary = Basic salary + DA = Rs. 4000 + Rs. 3000 =Rs. 7,000 (iii) The amount of gratuity = Solution: = Rs. 4,038. 12(b): Since the employee is working in a mill as a seasonal employee, calculate the number of seasons he has worked for before retirement. (i) Number of seasons = year 2007 to 2018 = 12 (Both the years being inclusive) Now calculate the last drawn salary. (ii) Last drawn salary = Basic salary + DA = Rs. 2000 + Rs. 1000 = Rs. 3,000 (iii) The amount of gratuity = (In case of seasonal employees, 7 days wages are given as gratuity for each season of service.) Solution: = Rs. 9,692. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 57

PRACTICE QUESTIONS – II 1. Is pension a statutory benefit in India and if so, for which segment of employees? (a) All employees working in any sector (b) All government employees (c) All employees covered under the EPF and Miscellaneous Provisions Act, 1952. (d) All government and public sector employees. 2. If an employer wishes to pay pension benefits to his employees in addition to the statutory pension if any, what arrangement should he make so that the employees may enjoy almost the same tax related benefits as available to government pensioners? (a) Adopt “pay as you go method” and pay pension direct from its current revenue as and when due. (b) Purchase pension on retirement of the employee from a life insurer paying lump sum amount from the current revenue. (c) Purchase pension from a life insurer paying out of an approved fund. (d) Purchase deferred annuity and pay installment premiums every year from the current revenue. 3. A scheme providing pension benefits as per Income Tax provisions is called: (a) Superannuation Scheme (b) Retirement Scheme (c) Pension Scheme (d) Retirement Income Scheme 4. Which government authority accords approval to such a scheme providing pensionary benefits to the employees? (a) Ministry of Finance. (b) Ministry of Labour. (c) PF Authorities. (d) Income Tax Department. 5. What is the maximum amount of pension that can be commuted as per Rule 90 of the Income Tax Rules? (a) 40% of the pension (b) One half of the pension if the employee does not gets gratuity, otherwise one third of the pension. (c) One third of the pension. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 58

(d) One half of the pension. 6. Pension from an approved fund entitles the pensioner to the benefit of: (a) Section 80 C (b) Section 80 D (c) Section 10 (d) None of the above. 7. Who is authorized to pay pension under an approved superannuation scheme to the eligible employees on their exit from service? (a) The trustees themselves. (b) The employer after taking withdrawals from the trust. (c) The Trustees of certain specified banks and any IRDA approved life insurer to whom the trustees pay the amount for purchase of the desired annuity. (d) The Pension Authority. 8. The type of annuity to be purchased from a life insurer can be any one of the following: (a) Annuity for single or joint life with or without guarantee of minimum period and / or return of corpus as decided by the employee / beneficiary. (b) Annuity Certain for any period as decided by the employee. (c) Annuity Certain for 15 years. (d) Any Type of annuity as decided by the employer. 9. The maximum contribution which an employer can pay to fund an approved superannuation scheme as percentage of the salaries of the employees is: (a) 15% (b) 12% (c) 10% (d) 27% minus percentage of PF contribution being paid by the employer. 10. The reasons for the DB type of pension schemes generally not being viable are: (a) Reluctance on the part of the employer and the employees not to pay more than a pre- determined contributions, (b) Lower yield during accumulation and payment stage than that assumed, (c) Absence of timely valuation of the fund from an actuary and non-payment of suggested contributions (d) All of the above including abnormal circumstances like introduction of VRS and / or steep fall in interest rates. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 59

ANSWERS TO PRACTICE QUESTIONS – II 1(c): As per the service rules, all government employees enjoy the benefit of pension on retirement which is on DB system and index linked. New entrants joining Central Government services (except armed forces) from 1st January 2004 shall be entitled to DC type of pension for which the Government and the employees shall contribute @ 10% of their salaries. But, all those employees who are covered under the EPF and Misc. provisions Act, 1952 enjoy benefits of the statutory pension scheme called Employee’s Pension Scheme, 1995. 2(c): If an employer wishes to pay pension benefits to his employees in addition to the statutory pension, if any, and wants that the employee should enjoy almost the same tax related benefits as available to government pensioners, then he should create a superannuation trust and get it approved from the Income Tax authorities under Schedule IV of the IT Act. The contributions made by the employer to such an approved trust are treated as deductible expenses. So, he saves full tax on the contributions. If it is a contributory scheme, the employees shall enjoy the benefit of Section 80C on their contributions. The interest income of the trust is also tax free. On retirement, the employee can get tax free commuted value to the extent of one third of the pension if he gets gratuity. If he is not entitled to gratuity, then one half of the pension can be had as tax free commuted amount. The pension paid or purchased from such a fund is treated as salary for the retired employee, thus allowing the benefit of standard deduction to the pensioner 3(a): The Schedule IV of the Income Tax Act gives procedure for approval of a scheme providing pension benefits to the employees / beneficiaries at or after a specified age. The name of the scheme as stated therein is “Superannuation Scheme”. So, a pension scheme providing pension benefits to the employees adopted by a company is called as “Superannuation Scheme”. 4(d): A superannuation scheme is approved by the Commissioner of Income Tax under Part B of the Schedule IV of the Income Tax Act. The application in a proper way has to be forwarded through the Assessing Officer of the company. 5(b): As stated above in reply to question number (2), one half of the pension can be commuted if the employee does not get gratuity, otherwise one third. This amount of commutation on retirement is tax free. 6(d): Pension from an IT approved fund or purchased out of the approved fund money is treated as salary and is taxable as such. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 60

It may here be mentioned that the pension has to be purchased from LIC of India or an IRDA approved Life Insurance Company by the trustees of an approved fund. The trustees of public or private sector companies are not empowered to pay pension themselves except the State Bank of India, the Public Sector Banks, the Industrial Development Bank of India, the National Bank for Agriculture and Rural Development, the Export-Import Bank of India, the Industrial Reconstruction Bank of India, the Small Industries development Bank of India and the National Housing Bank. 7(c): Refer to details given in reply to the question number (6) above. The trustees of certain specified banks in the Government Sector are authorized to pay pension direct to their employees. The trustees of all other organizations in the public and private sectors have to purchase pension (annuities) from LIC of India or an IRDA approved Life Insurance Company. 8(a): Annuity or pension must be for life-long with or without any other guarantees or benefits. In other words, annuity certain is not allowed to be paid or purchased from an approved trust. This seems to be a reason as to why the annuity is required to be purchased from a life insurer. 9(d): The government provides tax benefits to the employers with a view to encouraging them to set up “Superannuation Schemes” providing pension to the employees on retirement. In order to popularize this social security tool, the Government is willing to lose tax revenues so that the elderly may least depend on Government doles. The employer’s contributions to the extent of 27% of the salaries of the employees to the PF and the Superannuation schemes are treated as deductible expenditure. 10(d): The DB system of pension schemes is becoming non-viable and consequently unpopular because of many reasons. Since the cost of a DB type of scheme may keep on increasing on account of the current demographic trends and the constant fall in the interest rates, the employers and the employees may not be willing to contribute more and more to make up the deficit. This reluctance on the part of both the parties is making these DB schemes un- sustainable. Many such schemes are facing financial hardships because they are not being properly funded as advised by the actuary. In several cases, even timely valuation is not got done. The competition has forced many employers to reduce the staff strength by introducing VRS etc. These abnormal exits have also affected the funds adversely. In view of these difficulties, it is now being realized all over the world that the DB type of pension system need be replaced by the DC system. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 61

PRACTICE QUESTIONS – III Defined Contribution Plans: Provident Fund, Employees’ Pension Scheme & Employees’ Deposit Linked Insurance Scheme The EPF and Miscellaneous Provisions Act, 1952 1. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 extends to: (a) Whole of India. (b) A few specified States of India. (c) All States excluding Union Territories. (d) Whole of India except the State of Jammu and Kashmir. 2. Which of the establishments are covered under the EPF and Misc. Provisions Act, 1952? (a) An establishment having more than 20 employees. (b) An establishment having 20 or more employees. (c) An establishment notified by the Central Government and also that which is a factory engaged in a specified industry - employing 20 or more persons.. (d) An establishment notified by the Central Government and also that which is a factory engaged in a specified industry - employing more than 20 persons. 3. In an establishment covered under the EPF Act, can an employee / employees remain uncovered if so desired by the Employer and/ or by the employee? (a) No because all employees are statutorily to be covered for the benefits. (b) Yes, because the employee/s getting salary more than Rs. 15,000. p.m. may be excluded by the employer. (c) Yes, because the coverage depends upon the will of the employee and the employer. (d) Yes, because employer may include or exclude any number of employees as per his choice. 4. What are the benefits available to the employees now-a-days who are covered under the EPF and Misc. Provisions Act, 1952? (a) Benefits of Provident Fund and Family Pension Scheme. (b) Benefits of Provident Fund and Employees Pension Scheme. (c) Benefits of Provident Fund, Employees Deposit linked Insurance Scheme and Employees Pension Scheme. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 62

(d) Benefits of Provident Fund, Employees Deposit linked Insurance Scheme and Family Pension Scheme. 5. How is the amount of insurance cover worked out under the EDLI scheme of the PF Authorities? (a) On the basis of the average salary of the employee over a period of preceding 12 months at the time of death. (b) Under the statutory scheme of EDLI, term insurance cover is provided to the PF members on the basis of 30 months’ salary (Basic +DA) and 50% of the amount of average PF balance over a period of 12 months preceding the date of death subject to maximum of Rs. 6,00,000. (c) On the basis of the designation and the average salary of the employee over a period of preceding 12 months at the time of death. (d) None of the above. 6. What is the rate of matching contribution to the PF by the employee and the employer in a covered establishment? (a) @8.33% of the eligible salary. (b) @12.00% of the eligible salary. (c) @10.00% of the eligible salary. (d) Either @10.00% or @12.00% of the eligible salary as decided by the employer. 7. Who contributes for the Statutory Employees’ Pension Scheme (EPS), 1995? (a) Employer only. (b) Employer and Employee. (c) Employer and the Central Government. (d) Employer, Employee and the Central Government. 8. Why do most of the employers go in for a Group Insurance Scheme providing term cover from a life insurance company in lieu of the statutory Employees’ Deposit Linked Insurance Scheme? (a) To avail extra tax benefit (b) To save administrative expenses (c) To provide higher cover to employees than that available under EDLI scheme (d) To avoid statutory compliance 9. Maximum withdrawal from the Provident Fund for the purchase of a site for construction of a house thereon shall not exceed the cost of the site, or the PF balance (including member’s and employer’s contributions with interest) or : (a) 24 months’ salary (Basic + DA) of the member CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 63

(b) 18 months’ salary (Basic + DA) of the member (c) 36 months’ salary (Basic + DA) of the member (d) 12 months’ salary (Basic + DA) of the member 10. Maximum withdrawal from the Provident Fund for the purchase of a ready built house / flat or construction of a house shall not exceed the cost of such house / flat, or the PF balance (including member’s and employer’s contributions with interest) or : (a) 24 months’ salary (Basic + DA) of the member (b) 6 months’ salary (Basic + DA) of the member (c) 36 months’ salary (Basic + DA) of the member (d) 12 months’ salary (Basic + DA) of the member 11. To avail the withdrawals from the PF as asked for in question numbers (9) and (10), the member should have completed: (a) 2 years’ membership (b) 10 years’ membership (c) 5 years’ membership (d) 7 years’ membership 12. If a loan has already been taken from a state government, Co-operative society, Housing Board, Municipal Corporation or a body similar to Delhi Development Authority, withdrawal from the PF for repayment of such loan availed for the purpose of purchase of a dwelling house / flat or for the construction of a dwelling house including acquisition of a site is allowed subject to the maximum amount being the least of the outstanding loan with interest, the PF balance (including member’s and employer’s contributions with interest) and : (a) 24 months’ salary (Basic + DA) of the member (b) 6 months’ salary (Basic + DA) of the member (c) 36 months’ salary (Basic + DA) of the member (d) 12 months’ salary (Basic + DA) of the member 13. To avail the withdrawal from the PF for repayment of loan in the above question number (12), the member should have completed: (a) 2 years’ membership (b) 10 years’ membership (c) 5 years’ membership (d) 7 years’ membership CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 64

14. Illness, a non refundable advance from the PF may be allowed to a member in cases of: (a) Hospitalisation lasting for one month or more, or (b) Major surgical operation in a hospital, or (c) Suffering from TB, leprosy, paralysis, cancer, mental derangement or heart ailment (d) Any of the above. 15. The amount advanced for illness shall not exceed the member’s own contribution with interest in the fund or: (a) 24 months’ salary (Basic + DA) of the member (b) 6 months’ salary (Basic + DA) of the member (c) 36 months’ salary (Basic + DA) of the member (d) 12 months’ salary (Basic + DA) of the member 16. To avail advance from the PF for the member’s own marriage, the marriage of his or her daughter, son, sister or brother or for the post matriculation education of his or her son or daughter, the member should have completed: (a) 2 years’ membership (b) 10 years’ membership (c) 5 years’ membership (d) 7 years’ membership 17. Ms. Neelam joins a private limited company covered under the PF Act. The employer contributes for all the employees up to the specified salary limit. Her monthly salary consists of Rs. 10,000 as basic, and 10% of the basic as HRA, what would be the deduction from her monthly salary towards the statutory PF benefits? (a) Rs. 780 (b) Rs. 1200 (c) Rs. 1800 (d) Rs. 1920 18. In the above question number (19), what would be the employer’s liability including administrative charges under all the three schemes of the PF authorities, namely, EPF, EPS and EDLI? (i) PF contribution (a) Rs. 1800 (b) Rs. 367 (c) Rs. 780 (d) Rs. 1200 CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 65

(ii) Administrative expenses for maintenance of PF: (a) Rs. 165 (b) Rs. 110 (c) Rs. 500 (d) Rs. 176 (iii) EPS contribution: (a) Rs. 1250 (b) Rs. 833 (c) Rs. 541 (d) Rs. 1333 (iv) Administrative expenses for EPS: (a) Rs. 100 (b) Rs. 150 (c) Rs. 160 (d) Nil (v) EDLI contribution: (a) Rs. 50 (b) Rs. 33 (c) Rs. 75 (d) Rs. 80 (vi) Administrative expenses for EDLI scheme: (a) Rs. 1 (b) Rs. 200 (c) Rs. 5 (d) Nil 19. An employee having an average balance of Rs. 90,000 in the PF during the last 12 months dies in an accident, what amount of insurance cover is payable to his nominee under the EDLI scheme of the PF authorities if His Basic Salary is Rs.12000 and DA is Rs.3000 (DA Forming part of retirement benefits) (a) Rs. 90000 (b) Rs. 600000 (c) Rs. 412500 (d) Rs. 495000 20. From which date did the Employees’ Pension Scheme become effective? Page 66 (a) 1st January 1995 (b) 16th November 1995 (c) 1st January 1996 CFP Level 2 - Module 1 – Retirement Planning - Workbook

(d) 16th January 1995. 21. The “eligible service” for the purpose of the EPS is (a) The aggregate of the “actual service” and the “past service”. (b) The “actual service” only (c) The “past service” only (d) None of the above. 22. In the context of the EPS, the “actual service” means: (a) If the employee was already in service, the period of service rendered by the employee from the date on which the EPS came into force till the date of his exit. (b) If the employee joins the service after the date on which the EPS came into force, the period of service put in by him from the date of his joining service till the date of exit. (c) Any of the above. (d) Neither of the above. 23. What is meant by the “past service” under the EPS Act, 1995? (a) Service rendered by an employee up to the date of exit from service (b) Service rendered before the EPS came into force (c) Service rendered with an earlier employer (d) Service rendered by an employee from the date of joining Employees’ Family Pension Fund till the EPS came into force. 24. The EPS shall be applicable to every employee: (a) Who becomes a member of the Employees’ Provident Fund on or after the EPS scheme came into force (b) Who has been a member of the ceased Family Pension Scheme (FPS) (c) Who not being a member of the Family Pension Scheme from 1-4-93 to 15-11-1995 opts for joining EPS subject to compliance of certain conditions. (d) Any one of the above. 25. The “pensionable service” under the EPS is determined with reference to (a) The period of service for which the contributions have been received or are receivable in the Employees’ pension Fund. (b) The period of “actual service”. (c) The aggregate of the “actual service” and the “past service”. (d) None of the above. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 67

26. The “pensionable salary” shall be the average monthly pay drawn during the contributory period of service in the span of ……… preceding the date of exit from the membership of the EPS. (a) 10 months (b) 6 months (c) 12 months (d) 36 months. 27. A member shall be entitled to pension if has rendered minimum eligible service of (a) 5 years (b) 10 years (c) 20 years (d) 33 years. 28. Under the Employees’ Pension Scheme, the monthly superannuation or retiring pension is decided on the basis: (a) The pensionable service and the pensionable salary (b) The actual service and the pensionable salary. (c) The eligible service and the pensionable salary. (d) None of the above. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 68

ANSWERS TO PRACTICE QUESTIONS – III The EPF and Misc. Provisions Act, 1952 Answers Solutions / descriptions 1(d): The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 is applicable in all the states and union territories of India except the State of Jammu and Kashmir. 2(c): There are two conditions for application of the Act on an establishment. One, it should be engaged in an industry that is specified in Schedule I of the EPF Act or notified by the central government. Second, it should be employing 20 or more persons with any or all of them getting salaries up to the limit prescribed in the Act which is currently Rs. 6,500 pm. In other words, if the establishment is a specified one and has 20 or more employees and all of them get salaries above Rs. 6,500 pm, then that establishment is not covered under the Act. But even if one employee in such an establishment gets Rs. 6,500 or below, then that falls within the purview of the Act. Any member and the establishment once covered under the provisions of the EPF Act remain covered in future even though the covered employee or all the employees may get salaries higher than Rs. 6,500 pm. 3(b): In an establishment covered under the EPF Act, all those employees who get salaries more than Rs. 6,500 pm may be denied the statutory benefits if the employer so wishes. 4(c): There are three statutory benefits for all those employees who are covered under the EPF and Misc. Provisions Act, namely, PF, Pension and Life Insurance Cover linked with PF balance. 5(b): Under the statutory scheme of EDLI, term insurance cover is provided to the PF members on the basis of 30 months’ salary (Basic +DA) and 50% of the amount of average PF balance over a period of 12 months preceding the date of death subject to maximum of Rs. 6,00,000 The cost of this scheme is a fixed percentage i.e. @0.5% of the salary of the employees which is borne by the employer only. An employee’s salary in excess of Rs. 15000 pm is not counted for this purpose. 6(b): The employer and the employees contribute at the matching rate of 12% of the salaries. 7(c): Both the employer and the Central Government contribute for the EPS, 1995. Out of the employer’s contribution of 12% of the employees’ salaries, 8.33% goes to the Employees Pension Scheme. (The balance amount out of the employer’s contribution is credited to the CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 69

employee’s PF.) The Central Government also contributes to the EPS @1.16% of the salaries of the employees. 8(c): The PF Act permits an employer to apply for exemption from the provisions of the EDLI scheme, 1972 if he makes an alternative arrangement of providing higher benefits to the employees. Since the EDLI scheme provides only insurance cover on death of the PF member, the higher benefits here mean higher amount of risk cover. Many life insurance companies have come out with plans providing higher term cover under a group insurance scheme in lieu of EDLI scheme. The main reason for adoption of a Group Insurance Scheme of a life insurance company in lieu of EDLI scheme is that the employer can manage to provide higher life insurance cover to his employees. In most of the cases, where the majority of the staff is young i.e. the average age of the employees is around or below 35, even the cost of the Group Insurance scheme is well below the statutory cost of the EDLIS. Therefore, many of the employers willfully agree to go in for a group insurance scheme providing higher coverage to the employees without increasing their own burden. In some cases where the average age of the staff is quite high, the benevolent employers do not mind paying even higher cost for higher coverage. 9(a): If a PF member intends to purchase a site for construction of a house thereon, the maximum withdrawal can be equal to 24 months’ salary (Basic plus DA), the cost of the house or the PF balance including his and the employer’s contributions with interest, whichever is the least amount. 10(c): If a PF member intends to acquire a ready built house / flat or construct a house / flat, the maximum withdrawal can be equal to 36 months’ salary (Basic plus DA), the cost of the house or the PF balance including his and the employer’s contributions with interest, whichever is the least amount. 11(c): No withdrawal for the purpose of purchase of a site or for acquisition of a ready built house / flat or construction of a house / flat can be given unless: (i) the member has completed 5 years membership of the fund; (ii) the member’s own share of contributions with interest is not less than Rs. 1,000. (iii) a declaration from the member that the property is free from encumbrances. 12(c): The amount of withdrawal from the PF for repayment of such loan availed for the purpose of purchase of a dwelling house / flat or for the construction of a dwelling house including acquisition of a site should not exceed 36 months’ salary (Basic plus DA), the cost of the site or the PF balance including his and the employer’s contributions with interest, whichever is the least amount. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 70

13(b): For such a withdrawal from the PF, minimum 10 years membership of the fund is required and the member’s own share of contributions with interest should not be less than Rs. 1,000. 14(d): A member may be allowed non refundable advance from his account in the fund for any of the three circumstances of illness stated here below: 1. Hospitalisation lasting for one month or more, or 2. Major surgical operation in a hospital, or 3. Suffering from TB, leprosy, paralysis, cancer, mental derangement or heart ailment A member may raise such an advance even for the treatment of a member of his family. 15(b): The amount of advance for illness should not exceed the member’s own contribution with interest in the fund or the member’s salary (Basic + DA) for six months. 16(d): To avail advance from the PF for the member’s own marriage, the marriage of his or her daughter, son, sister or brother or for the post matriculation education of his or her son or daughter, the member should have completed 7 years’ of membership of the fund. The amount of his own share of contributions with interest should be Rs. 1,000 or more, and not more than three advances shall be admissible to a member. This non refundable advance shall not exceed 50% of the member’s own share with interest. 17(b): Since the employer contributes up to the specified salary limit of Rs.15000 pm, the employee will also be matching his contribution of 12% up to the salary of Rs. 15,000. Therefore, the monthly deduction from the salary of Ms. Neelam would be 12% of Rs. 10,000 amounting to Rs. 1200 pm. 18(i)(b): The employer shall pay 12% of Rs. 10,000 i.e. Rs. 1200 pm. Out of this amount, 8.33% of Rs. 10000 i.e. Rs.833 will go to the pension account under EPS, 1995 and the balance i.e. Rs. 367 will go to the employee’s PF account. 18(ii)(c): The employer pays administrative expenses for PF @ 0.65% of the salary bill. Since we are calculating for one employee only, a sum of Rs. 65 pm will be paid by the employer every month but minimum is Rs.500 18 (iii)(b): As explained in 20(i)(b) above, a sum of Rs. 833 i.e. 8.33% of the salary of Rs. 10000 (Salary is taken as Basic +DA and up to Rs.15000 p.m. but in this case DA is not forming part for retirement purpose) will go to the EPS account of the employee. The employee does not contribute for the EPS scheme. 18 (iv)(d): No administrative charges are levied by the PF authorities for EPS. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 71

18 (v) (a): Contribution for EDLI scheme is paid only by the employer @ 0.50% of the salary of the employee. In the given case, the amount would be 0.50% of Rs. 10000 i.e. Rs. 50 pm. For EDLI, any salary above Rs. 15000 pm is not counted. 18 (vi)(b): Administrative expenses for EDLI are paid only by the employer at the rate of 0.01% of the salaries of the employees up to Rs.15000 pm subject to minimum of Rs. 200 pm. Hence, in this case, the minimum amount of Rs. 200 pm will have to be paid by the employer because the actual amount works out to be only Re.1.00 (0.01% of Rs. 10000). 19(d): Under the EDLI scheme of the PF Authorities, in case of death of the earning member, family is paid EDLI as per following formula : The claim amount of the EDLI is decided by the last drawn salary of the employee. The claim amount would be the 30 times of the salary. Along with this, the bonus of Rs 1.5 lakh is also given. For this calculation salary is ‘basic pay plus DA’. Since, there is a ceiling of salary considered for the EDLI contribution, the claim amount also has the upper limit. The wage ceiling for the EDLI is Rs 15,000. Thus, the maximum EDLI claim amount would be Rs 6 lakh [(30 x15,000) + 1,50,000] The average monthly wages drawn (subject to a maximum of Rs.15000), during the 12 months preceding the month in which he died, multiplied by 30 times +50%, of the average balance in the account of the deceased in the fund or of a Provident Fund exempted under Sec 17 of the Act or under paragraph 27 or 27 A of the Employees Provident Fund Scheme, 1952, as the case may be, during preceding 12 months or during the period of his membership, whichever is less, subject to a ceiling of Rs,1,50,000 , subject to a total ceiling of Rs.6,00,000. Basic+ DA of an employee is Rs.15000 and average PF balance in his account preceding the month in which he died is Rs.90000. He will get (30*15000+ 50% of Rs.90000)= Rs.4,95,000. 20(b): The Employees’ Pension Scheme, 1995 became effective from 16th of November 1995. 21(a): In the case of new entrants, the “eligible service” means the “actual service” and in the case of existing member as on 16-11-1995, the aggregate of the “actual service” and the “past service”. Hence, the answer 23(a) is correct. 22(c): “Actual service” means the period of service from 16-11-1995 or from the date of joining service, whichever is later, to the date of exit from the employment of the establishment covered under the Act. So, the answer number 24 (a) and (b) are true. Since we are to choose only one of the answers, 24 (c) is the appropriate choice. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 72

23(d): The “past service” under the EPS scheme means the period of service rendered by a member before the EPS became effective i.e. up to 15-11-1995 as a member of the erstwhile Family Pension Scheme. 24(d): The EPS is compulsory for all the new members of the Employees, Provident Fund who joined service on or after 16-11-1995. The existing employees on the said date of 16-11-1995 who were earlier covered under the Family Pension Scheme were also automatically covered under the EPS. A relaxation was also given to those who were not members of the ceased Family Pension Scheme between the period of 1-4-93 to 15-11-1995. They could also give option to become members of the new Employees’ Pension Scheme subject to certain conditions. 25(a): The “pensionable service” of the member shall be determined with reference to the contributions received or receivable on his behalf in the Employees’ Pension Fund. However, in the case of a member who superannuates on attaining the age of 58 years and / or who has rendered 20 years pensionable service or more, his pensionable service shall be increased by adding a weight age of 2 years. 26(c): The “pensionable salary” shall be the average monthly pay drawn in any manner including on piece- rated basis during the contributory period of service in the span of 12 months preceding the date of exit from the membership of the EPS. 27: A member is entitled to three types of monthly pension as under: (a) Superannuation pension, if he has rendered eligible service of 20 years or more and retires on attaining the age of 58 years; (b) Retirement pension, if he has rendered eligible service of 20 years or more and retires or otherwise ceases to be in the employment before attaining the age of 58 years; (c) Short service pension, if he has rendered eligible service of 10 years or more but less than 20 years. Thus, the minimum eligible service required to be entitled to the pension is 10 years. 28(a): Under the Employees’ Pension Scheme, the monthly superannuation or retiring pension for new entrants is decided on the basis of the pensionable service and the pensionable salary and worked out as below:. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 73

PRACTICE QUESTIONS – IV 1. A good retirement benefit scheme should satisfy the following need of the person: (a) Need for a regular periodical income after retirement (b) Need for lump sum cash payment on retirement (c) Need for reimbursement of expenses connected with medical emergencies (d) All of the above. 2. Gratuity benefit payable by an employer as per the provisions of the Payment of Gratuity Act, 1972 is under (a) Defined Contribution retirement benefit (b) Defined Benefit type of a retirement benefit (c) Either of the two types of benefit plans (d) Neither of the plans. 3. Contributions under a defined benefit plan (a) Will be fixed in relation to the wages earned (b) Will be determined based on the benefits assured (c) Will remain unaltered once fixed (d) Will be decided by the members of the benefit scheme Consider the following employee: Mr. Subodh Kothari (D.O.B: 28.11.1967) joined the services of ABC engineering and locomotives Company Limited on 15th July 1989. His salary was fixed at 25,000 p.m., with an annual increase of 5%. He has to retire on 30.11.2027. His last drawn salary would be Rs. 160000 p.m. 4. If Mr. Kothari has a retirement benefit plan which promises to pay him 1.5% of the last drawn salary for every completed year of service or part thereof, as the monthly income after retirement, he would get a monthly income of (a) Rs. 91200 (b) Rs. 85450 (c) Rs. 752801 (d) None of the above 5. In case of a defined benefit plan where the benefit payable is based on the terminal salary, an increase of 10% of the wages of the employees would increase the contribution to be made by the employer for the benefit by CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 74

(a) Exactly 10% of the earlier level of contribution (b) More than 10% of the amount of contribution being made earlier (c) Less than 10% of the earlier rate of contribution made before the wage revision (d) Can be any of the above. (e) None of the above 6. If Mr. Kothari’s employer had an approved Provident Fund for its employees and were contributing to the Fund equal to the employees’ contributions, the benefit scheme would fall under: (a) Defined benefit scheme (b) Defined contributions scheme (c) Either of the two (d) None of the two 7. Which of the following is not a defined benefit retirement plan: (a) Gratuity benefit payable as per the Act (b) Superannuation scheme as applicable to the Government Servants (c) Gratuity benefit payable to the Public sector Banks’ employees as per the agreement between the employees and the Indian Banks Association (d) Employees’ Provident Fund Benefit. 8. From the view of the employer, a defined contribution retirement benefit plan is easier to operate because: (a) His contribution would be lesser than the defined benefit plans (b) He doesn’t have to contribute anything to the scheme at all (c) Since there is no need for valuation the employer’s expense is less (d) The employer doesn’t have to submit any returns to any authority for approval. 9. In case of a defined benefit plan where the benefit payable is based on the terminal salary, an increase of 10% of the wages of the employees would increase the contribution to be made by the employer for the benefit by (a) Exactly 10% of the earlier level of contribution (b) More than 10% of the amount of contribution being made earlier (c) Less than 10% of the earlier rate of contribution made before the wage revision (d) Can be any of the above. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 75

10. In a defined contribution retirement plan, any change in the rate of interest earned by the funds would affect (a) The benefits payable to the employees and not the employer (b) The contribution payable by the employer and not the benefits payable to (c) The employees (d) Both the employees’ benefit and the employer’s contributions (e) None of the above 11. Carrying the retirement benefit plan from one employer to another when an employee leaves the service of one employer and joins another is easy if the retirement plan is under (a) Defined benefit plan (b) Defined contribution plan (c) The type of plan makes no difference (d) None of the above 12. Gratuity is payable to all employees who leave the service of an employer (other than by death or incapacitation) after putting is a minimum service of years (a) 15 (b) 10 (c) 5 (d) 12 13. The minimum service required for entitlement to payment of Gratuity under the Act, in case of an employee leaving service by death or incapacitation is (a) 2 years (b) 3 years (c) 5 years (d) No minimum service required 14. For calculation of liability of payment of gratuity to an employee on leaving service, the wage to be taken into account is (a) The average wage earned by him in the entire service (b) The average wage earned by him in the last 5 years (c) The last drawn wage (d) None of the above 15. The amount of the liability of payment of gratuity is calculated at the rate of Page 76 (a) One month’s wage for each completed year of service CFP Level 2 - Module 1 – Retirement Planning - Workbook

(b) 20 days’ wages for each completed year of service (c) Half a month’s wage for each completed year of service (d) 15 days’ wages for each completed year of service 16. For calculation of the rate at which the wages of an employee would be taken for calculation of gratuity, the number of days in a month would be taken as (a) 31 days (b) 30 days (c) 25 days (d) 26 days 17. The Payment of Gratuity Act stipulates that the nomination for payment of gratuity, in case of the death of an employee has to be in favour of (a) The spouse of the employee only (b) Any close relative of the employee (c) Any member(s) of the family of the employee (d) Any person as per the wish of the employee 18. The prime financial goal under retirement planning is (a) Arrange for cash flow liquidity (b) Meeting family obligation (c) To have assured returns (d) To manage average income 19. For creation of an estate through long term planning with risk coverage the best product is (a) Accident Insurance Policy (b) Life Insurance Policy with profit & Accident Cover (c) Long Term Care Policy (d) Health Insurance Policy 20. The named beneficiary in a life insurance policy is generally known as (a) nominee (b) legal heir (c) claimant (d) assignee 21. NSSO stands for Page 77 (a) National sample survey organization CFP Level 2 - Module 1 – Retirement Planning - Workbook

(b) National Social security organization (c) National social service organization (d) National small saving organization 22. The term OASIS stands for (a) A place with lake in a desert (b) Organisation for application of scientific innovative systems (c) Old age social and income security (d) Old age security information system 23. Wealth Erosion occurs on account of (a) Losses incurred (b) Reduction in purchasing power of currency (c) Increase in expenditure (d) Accumulated debts 24. The abbreviation SLY stands for (a) Safety Liquidity and Yield (b) Security Linked Yield (c) Small Liquidity Yield (d) Saving Linked Yield 25. Rebates are allowed under Section of modified IT Act. (a) Section 88 (b) Section 24 (c) Section 64 (d) Section 80 26. Public Provident Scheme is for (a) a period of 8 years (b) a period of 20 years (c) a period 15 years (d) a period of 12 years 27. Tax exemption limit for the lump sum received towards Leave Encashment on retirement is at Rs. (a) Rs. 3.5 lacks (b) Rs. 3 lacks CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 78

(c) Rs. 2.4 lacks (d) Rs. 2 lacks 28. Commutation of pension up to a limit of is tax exempt in case the gratuity also is received. (a) ¼ of the pension (b) 1/3 of the pension (c) ½ of the pension (d) ¾ of the pension 29. While estimating retirement income needs planner should consider (a) That where the individual stands financially for retirement (b) Purposes (c) That where he wants to be financially during the retirement and his Ability to reach his objectives (d) A & B above (e) None of the above 30. A planner must analyse features of personal assets at the time of retirement planning on the basis of parameters viz. (a) return (b) return& risk (c) return, risk and liquidity (d) all the above (e) None of the above. 31. For how many years can a PPF account be extended after the initial 15 years of operating a PPF account? (a) 2 years (b) 5 years (c) 10 years (d) Block of 5 years (No Limit) 32. Is there a maximum limit on the investment I can make in a post office Monthly Income Scheme (MIS) account? (a) Yes Rs. 4,50,000 solely (b) Yes Rs. 9,00,000 jointly (c) No (d) A & B above CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 79

33. Retirement Counselling does not mean interviewing the client but (a) It is clear and effective communication with the client. (b) It is helping the client to achieve his goals. (c) To know the clients expectations in advance then assess whether the expectations have been achieved or not. (d) All the above (e) One of the above 34. The variation of return from expected rate of return is called (a) Investment risk. (b) Business risk (c) Market Risk (d) None of the above 35. In the falling interest rate scenario which risk will be faced by the investors as regards matured investments? (a) Business risk (b) Reinvestment risk (c) Inflation risk (d) None of the above 36. The assets in the Client’s financial portfolio depends upon (a) His risk appetite (b) His wealth and income (c) His income earning span (d) Financial goals (e) All the above 37. Portfolio of client should be restructured for retirement planning years before retirement. (a) 5 to 10 years (b) 1 year (c) 3 years (d) 20 years 38. If the client desires to have income growing but without erosion of principal then he may invest in (a) Monthly income schemes as it pays only interest and principal will be paid at the time of maturity. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 80

(b) Immediate life Annuities with return of purchase price (c) Long term fixed deposit or bonds (d) Rent on real estate (e) All the above 39. Arithmetic mean is appropriate measure of average performance over (a) Multiple period (b) Single period (c) Broken period 40. Geometric mean reflects the rate of growth over time. (a) Simple (b) Double (c) Compound 41. Geometric mean is always arithmetic mean. (a) Equal to (b) Greater than (c) Less than 42. Your client has purchased shares of reliance worth Rs. 1000. He received dividend 10%, 15%, 12%, 17%, 20% respectively for five years calculate the rate of return by Using arithmetic mean (a) 14% (b) 15% (c) 14.8% (d) 14.5% 43. Using the data in above problem calculate rate of return using geometric mean method (a) 14% (b) 14.74% (c) 14.8% (d) 14.5% 44. The return on equity stock for a year is 23%. The rate of inflation during that year is 5%.Calculate the real total return (a) 17% (b) 20% (c) 19.5% CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 81

(d) 17.14% 45. Your client has purchased shares of reliance worth Rs. 1000. He received dividend 10%, 15%, 12%, 17%, 20% respectively for five years calculate risk of shares. (a) 0.00628 (b) 0.00157 (c) 0.05 (d) 0.74 46. Suppose a client puts away Rs. 10000 and this earns a net average 7 per cent per annum, which is com- pounded. By age 60, a person who started this practice at age 30 (simply investing and not adding anything other than interest) will have accumulated Rs. (a) 76122.55 (b) 75000.55 (c) 75600.45 (d) 76211.540 47. The percentage above 65 on global level will rise to in the year 2025. (a) 12% (b) 14% (c) 10% (d) 9% 48. Retirees generally need per cent of their pre-retirement income to sustain their desired lifestyle. (a) 25 to 30% (b) 50 to 75% (c) 90% (d) None of the above 49. Budgeting for retirement can be done more accurately (a) In the young age (b) Near to retirement age (c) After retirement (d) Immediately after marriage CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 82

50. To reduce stress in retirement, clients need to be (a) Encouraged to join clubs (b) Encouraged to set goals, plan their lifestyle and plan their finances (c) Do not make any planning for retirement (d) Encouraged to plan luxurious lifestyle 51. The clients often choose and remain with a financial planner because (a) They believe they can develop a long-term, trusting relationship with the adviser as a person, not an institution. (b) Their children are not trustworthy (c) They have no acumen to plan for retirement (d) They do not trust financial institutions 52. What do you mean by qualified plan? (a) Any type of retirement plan that do not afford special tax treatment (b) Any type of retirement plan afforded special tax treatment because it meets the requirements set forth in the Internal Revenue Code. (c) Any type of retirement plan introduced by the employer to meet the requirements set forth in the Internal Revenue Code. (d) None of the above 53. What are the key factors that affect the qualified plan selection (a) Employer objectives, Outlay of benefit, Employer’s industry, Type of employer, Type of employee (b) Employer objective, employee objective, cash outflows, profits (c) Employee’s choice (d) None of the above 54. What is the advantage of profit sharing plan? (a) Allows greater employee payroll reduction contributions than most other plans (b) Allows employers to contribute and deduct more than other defined contribution plans. Guarantees that employees receive an annual contribution (c) Allows greater employee payroll reduction contributions than most other plans and, if the employer chooses, employees may direct the investment of their assets. (d) Employers have flexibility to vary the annual contributions. Appropriate for businesses with unpredictable cash flow. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 83

55. A mandatory defined benefit and annualised scheme was created by the Central Government under sec 6A of Employee’s Provident Fund and Miscellaneous provisions Act, 1952 (PF Act) is known as (a) EPF 1995 (b) EPS 1995 (c) Employers Pension Scheme 1995 (d) Public Pension Scheme 1995 56. EPS (1995) is applicable to employees of ‘establishments’ falling within the preview of the (a) ESI Act (b) Workmen’s compensation Act (c) Provident Fund Act (d) Income Tax Act 57. Employer can contribute maximum of a total of salary towards PF & pension and further amount up to of salary towards Gratuity Fund. (a) 25%, 5% (b) 27%, 8.33 % (c) 8.33%, 8.33% (d) None of the above 58. How much amount employee contributes towards provident fund? (a) 8.33% of basic salary (b) 10% of basic salary (c) 12% of basic salary (d) 20% of gross salary 59. How much amount employer contributes towards EPS? (a) 10% of basic salary (b) 12% of basic salary (c) 20% of gross salary (d) 8.33% of basic salary 60. There are broad categories of pension schemes in India. Page 84 (a) 5 (b) 4 (c) 3 (d) 1 CFP Level 2 - Module 1 – Retirement Planning - Workbook

61. Life Insurance pays in the event of death while annuity pays on (a) Disability (c) Survival (b) Marriage (d) All above 62. The annuities can be classified into on the basis of commencement of payment of annuity viz. (a) 3, Immediate, Life Immediate annuity, immediate annuity certain (b) 2, Immediate annuity, deferred annuity (c) 2 Last survival annuity, life annuity (d) All above ANSWERS TO PRACTICE QUESTIONS – IV 1. d 2. b 3. b 4. a 5. b 6. b 7. d. 8. c 9. b 10. a. 11. b 12. c 13. d 14. c 15. d 16. d 17. c 18. c 19. b 20. c 21. b 22. c 23. d 24. c 25. d 26. c 27. b 28. b 29. c 30. c 31. d 32. d 33. d 34. a 35. b 36. e 37. a 38. e 39. b 40. c 41. c 42. c 43. b 44. d 45. b 46. a 47. c 48. b 49. b 50. b 51. a 52. b 53. a 54. d 55. b 56. c 57. b 58. c 59. d 60. c 61. c 62. b CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 85

PRACTICE QUESTIONS – V 1. A retirement benefit scheme providing for regular periodical income after retirement can take care of the problems due to inflation by (a) Providing for a lump sum cash payment at the beginning of the periodical income (b) Making the periodical income stream linked to an index representing the cost of living (c) Handing over the handling of investments of the funds earmarked for the benefit to professional managers (d) None of the above 2. A defined benefit plan provides for (a) Lump sum cash payment on retirement only (b) Periodical income after retirement. (c) Either a lump sum payment or periodical payments or a combination of both depending upon the contributions made by the person (d) Either a lump sum payment or periodical payments or a combination of both depending upon the pre-fixed formula of benefits. 3. The exact share of the assets belonging to each member of the fund is easily calculated in case of (a) Defined benefit schemes offering lump sum payments on retirement (b) Defined contribution scheme offering regular income after retirement (c) Defined benefit schemes offering regular income after retirement (d) Both the types of plans as there is no difference in asset allocation 4. The Payment of Gratuity Act, 1972 is applicable to employers employing a minimum of employees: (a) 10 (b) 15 (c) 5 (d) 20 5. The maximum liability of payment of Gratuity under the Act, as it stands today, is Page 86 (a) Rs. 5,00,000/- (b) Rs. 2,50,000/- (c) Rs. 3,50,000/- (d) Rs. 20,00,000/- CFP Level 2 - Module 1 – Retirement Planning - Workbook

6. A nomination made in favour of a person who is not a member of the family of the employee (a) Would always be valid once it is accepted (b) Would be valid only if the employee did not have a family (c) Would be valid only if it is approved by a Court of Law (d) Would never be valid 7. Provision for encashment of Leave to the credit of the employee in the books of accounts of an employer is made compulsory by (a) A Central Legislation governing the retirement benefits of employees (b) Legislations of the individual states which deal with the provision of the employee benefits (c) Accounting Standards brought out the Accounting Professional Body (d) None of the above 8. The Gratuity received by the employee as calculated by the provisions of the Act is (a) Exempt from the Income Tax completely (b) Exempt from the Income Tax up to a ceiling and the balance is taxable (c) To be treated as income in the hands of the employee (d) Subject to the provisions of capital gains tax 9. The gratuity received by the nominee (or the dependents) in case of the death of the employee while in service is (a) Totally exempt from Income Tax (b) Exempt from the Income Tax up to the ceiling prescribed in the Act and any gratuity in excess of that is taxable (c) To be subject to Wealth Tax and exempt from Income tax (d) None of the above 10. The amount paid in encashment of leave on the employee leaving service is (a) Treated as income in the hands of the employee and taxed (b) Exempt from the Income Tax fully (c) Exempt from the Income Tax up to a certain limit (d) Subject to a reduced rate of tax 11. As per Industrial Disputes Act, the compensation payable to a workman in case of retrenchment is (a) One month’s wage for each remaining year of service and part thereof (b) 15 days’ wages for each year of remaining service and part thereof (c) 15 days’ wages for each completed year of service and part thereof CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 87

(d) 30 days’ wages for each completed year of service and part thereof 12. Once an employer introduces superannuation benefit for his employees, he can arrange for the same by (a) Payment by the employer (b) Creating a Trust and administering the scheme through the Trust (c) Entering into a contract with a Life Insurer (d) Any of the above 13. Payment of the superannuation benefit by charging to the current revenue is not permitted as per the provisions of (a) Income Tax Act, 1961 (b) Insurance Act, 1938 (c) Payment of Gratuity Act, 1972 (d) Accounting Standards by ICAI 14. In case of voluntary retirement of an employee the additional benefit payable by the employer is (a) A taxable income in the hands of the employee (b) Exempt from Income Tax wholly (c) Exempt from Income Tax up to Rs. 5, 00,000 (d) Exempt from Income Tax up to Rs. 2,50,000 15. Superannuation benefit for an employee has to be under (a) Defined benefit plan (b) Defined contribution plan (c) Either of the two above (d) None of the above 16. Which of the following statements is wrong with reference to Trustee Administered Approved Superannuation Funds? (a) Trustees will have to compulsorily transfer all the contributions received from the employer to a Life Insurance and have an Insurance scheme in place. (b) The Trustees will have to file the returns with the Income Tax Commissioner to get the Fund approved continually (c) The Trustees have to buy annuity contracts from a Life Insurer as and when the superannuation benefits become payable as per the scheme (d) None of the above CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 88

17. For becoming an approved superannuation fund, the fund has to be approved by (a) The Commissioner of Labour Welfare under the Industrial Disputes Act (b) The Commissioner of Labour Welfare under the Payment of Wages Act (c) The Commissioner of Income Tax Act, under the Income Tax Act (d) The Commissioner of the Local Body under the Shops and Establishment Act. 18. The contribution made by the employer to an approved superannuation fund is (a) Treated as perks in the hands of the employee (b) Treated as business expense of the employer for computation of business income (c) Treated as income to the extent of commuted value of pension that is received on retirement (d) None of the above 19. The income received by the approved superannuation fund on the investments made by the fund is (a) Exempt from income tax (b) Taxed at a concessional rate of 10% of the income (c) Taxed at the hands of the employees concerned based on the share of each employee (d) Taxed under Capital Gains Tax depending upon the nature of investment 20. The approved superannuation fund has to deposit all the contributions received from the employer (a) With the Government of India through the Reserve Bank of India (b) In a Savings Bank Account with the Reserve Bank of India (c) In a Savings Bank Account with a Post office or a Scheduled Bank if they are not invested in any of the approved investments specified (d) None of the above. 21. The contributions made by an employee to an approved superannuation fund is (a) Deducted from the taxable income of the employee under Section 80 L of Income Tax Act, 1961 (b) Eligible for tax rebate under Section 80 C of Income Tax Act, 1961 (c) Eligible for deduction under Section 80 G of Income Tax Act, 1961 up to 50% of the contribution (d) Not eligible for any tax concession 22. An employer who does not want any tax favoured treatment for the superannuation benefit payments can CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 89

(a) Pay the pension payout directly to the retired employees directly from the current year’s profits every year. (b) Make a provision for the accrued liability of pension in the books of accounts ever year and pay the benefits himself to the employees or their dependents (c) Buy annuity contracts from a life insurer (d) Do any of the above. 23. If the trustees of a superannuation fund directly enter into a group superannuation contract with a life insurer then (a) The fund will not get the approval from the Commissioner of Income Tax (b) The employer will get the tax benefits for the contributions made to the Life Insurance company based on the life insurer’s certification (c) The trustees need not maintain any books of accounts (d) The trustees will have to get actuarial certification of the liability in order to get tax benefits 24. The pension payment received by the employee after retirement from an approved superannuation fund is (a) Exempt from income tax as the superannuation fund was approved (b) Treated as income fully and taxable (c) Eligible for tax exemption up to 50% of the last drawn salary (d) None of the above 25. The Investment Norms are applicable to a superannuation fund (a) Only if the fund has to be approved under the Income Tax Act (b) Irrespective of whether the fund is approved or not (c) Only if the fund is for the welfare of Government Employees (d) Only if the fund is managed by Private Fund managers 26 Individuals can buy annuity contracts from Life Insurance companies (a) Only if they do not have any superannuation benefit from their employer (b) Only if they are self- employed or employed in unorganized employment (c) Irrespective of whether they are employed or not (d) Only if they want to reduce the tax liability 27. Individual pension plans sold by mutual funds will Page 90 (a) Provide regular pension guaranteed for life (b) Provide regular pension for a fixed period of years CFP Level 2 - Module 1 – Retirement Planning - Workbook

(c) Provide regular pension for life but guaranteed for a fixed period of years (d) None of the above 28. Annuities when received by the annuitants (a) Are exempt from Income Tax completely (b) Are exempt from income tax after age 65 (c) Treated as income for the purpose of income tax (d) Treated as capital gain in respect of the interest portion only 29. Profit sharing plans mean (a) Superannuation benefit for which the employer and the employee contribute (b) Defined benefit retirement benefit plan, to which the employer contributes a certain portion of the profits made by him (c) Defined contribution retirement benefit plan, to which the employer contributes a certain portion of the profits made by him (d) A plan in which the employee gets an annual payment linked to the profits of the employer 30. The pension scheme for the senior citizens can be purchased from (a) Any Life insurer registered with the IRDA (b) Life Insurance Corporation of India only (c) Public Sector Banks and Life Insurance Companies (d) Any scheduled bank or post office in the country 31. Pension is product which collects and accumulates money for an individual during his working life time to make provision for income after retirement. (a) Financial (b) Insurance (c) Intangible (d) Investment 32. Policy money becomes payable on survival to an individual if a policy is taken under plan. (a) Term Assurance (b) Health and Term Assurance (c) Endowment (d) Annuity 33. On life insurance policy is payable if it is with profit policy. (a) Bonus CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 91

(c) Dividends Page 92 (b) Interest (d) Surplus 34. Cash accumulation under an annuity policy can also be arranged during period. (a) Intervening (c) Waiting (b) Deferment (d) Vesting 35. TDS stands for (a) Total deducted sum (b) Tax deduction system (c) Tax deducted at source (d) Tax description Slip 36. Financial planner has to undertake an effective process. (a) Counseling (c) Conversation (b) Consultation (d) Communication 37. In estate planning management of cost is important. (a) Living (c) Revenue (b) Maintenance (d) Initial 38. In our country income tax provisions are enforceable under. (a) Income Tax Act 2003 (b) Income Tax Act 1985 (c) Income Tax Act 1961 (d) Income Tax Act 1993 39. The Central Government Budget is presented for a specified. (a) Calendar year (b) Previous year (c) Financial year (d) Fiscal year CFP Level 2 - Module 1 – Retirement Planning - Workbook

40. The assesses are broadly classified as. (a) Individual / Corporate (b) Individual / HUF (c) Individual / Firm (d) Resident / Non-resident 41. Income Tax is classified under taxation system. (a) Direct (c) Both Direct and Indirect (b) Indirect (d) None of the above 42. In Retirement planning is most important point to be Considered. (a) Level of Income (b) Family size (c) Present Wealth (d) Time Factor 43. Generally gratuity will be received. (a) after normal retirement (b) submission of resignation (c) on being retrenched (d) on being laid off 44. The maximum limit of gratuity payable under the payment of Gratuity amendment Act 2019 is. (a) Rs. 4 lacks (c) Rs. 3 lacks (b) Rs. 10 lacks (d) Rs. 20 lacks 45. There is relationship between inflation and money supply. (a) indirect (b) direct (c) inverse (d) none of the above 46. There is relationship between inflation and purchasing power parity per currency unit. (a) Inverse (b) direct CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 93

(c) indirect (d) inter-dependent 47. Deficit Financing Provision in the Budget will result into (a) increase in money supply (b) adjustment of interest rate (c) rise in prices (d) fall in National Savings 48. The proceeds under key man insurance policy are (a) subject to tax (b) partially taxable (c) non- taxable (d) can be contested 49. Life insurance proceeds received by an individual as per Finance Bill 2003. (a) are exempt from tax (b) are taxable (c) are partially taxable (d) Taxable if the premium paid during the year is 20% of the Sum assured. 50. The retirement objectives differ from person to person which in turn depend upon various factors like (a) age, marital status (b) number of dependants and their ages (c) health and preferences (d) all the above 51. Customer objectives in retirement planning are (a) Maintain Pre retirement style of living (b) Financial Independence (c) Early Retirement (d) Minimising taxes (e) Wealth Transfer (f) Improved standard of living in retirement (g) Non economic objectives & Other objectives (h) All the above CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 94

52. It is important for a planner to note that the retirement planning should be done (a) only a few years before retirement (b) even if individuals are just started earning (c) After retirement (d) None of the above 53. There are ——— common methods to determine the income needs, viz. (a) Income Replacement method (b) Expense method (c) Income Replacement Method and Expense Method (d) None of the above 54. List out characteristics of qualified plans (a) Always Tax deferred to employees (b) Immediate Tax deduction to employer (c) Accumulated earnings are tax free (d) Special tax treatment at retirement for employees (e) Effective instruments to attract retain and motivate employees (f) It must meet non-discrimination rules in selection and cost (g) Plan administration is expensive and difficult (h) All the above 55. Can a person having a PPF account in the State Bank open another account in the post office and vice- versa? (a) Yes (b) Absolutely not 56. Increase in inflation reduces the (a) Purchasing power of money (b) Interest rate in economy 57. In the falling interest rate scenario, as a financial planner which instruments you will suggest to your retiring clients? (a) Short term fixed deposit (b) Life Insurance Policies (c) Life Annuities (d) Shares and debentures (e) All the above (f) None of the above CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 95

58. What are the causes of investment risk? (a) Inflation (b) Interest rate (c) Financial Market changes (d) All the above (e) None of the above 59. Ideally client’s portfolio should contain assets. (a) Specialized (b) Unique (c) Diversified 60. Retiring client’s portfolio should contain (a) High return-High risk assets (b) Highly illiquid assets (c) Low percentage of high return high risk assets (d) High percentage of safe and liquid assets (e) None of the above 61. What are the income generating sources after retirement? (a) Rental income from real estate (b) Interest/dividend income from investment (c) Income from annuities, monthly income schemes (d) Income by doing part time job (e) Liquidating real estate or stocks and other assets like gold, silver, etc. (f) All the above 62. The assets in the portfolio are selected in a way to meet (a) client’s objectives after retirement (b) health of self and spouse (d) stability of income (c) financial obligations other than personal care (e) All the above 63. What caution should be taken while recommending the risky investment instruments to the retiree? (a) The proportion of these assets should be bare minimum in the retiree’s portfolio, as the losses should not be recovered. CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 96

(b) The proportion of risky assets may be not more than 50% 64. Retirees portfolio must contain to reduce lump sum expenditure if he becomes disabled or ill (a) Shares (b) Debentures (c) Real estate (d) Health insurance Medi-claim Hospitalisation policy, Critical illness policy 65. A financial planner will come across attitude towards equity types of clients viz. as regards risk tolerance and (a) 1, risk takers (b) 2, risk takers and risk averse 66. Real return on investment is calculated by using (a) Real Return = (b) Real Return = (c) Real Return = 67. The return on stock for a year is 18%. The rate of inflation during that year is 7% calculate the real total return (a) 10.28% (b) 10.82% (c) 10.02% (d) 10.22% 68. Suppose a client puts away Rs. 10000 and this earns a net average 6 per cent per annum, a person who started this practice at age 35 (simply investing and not adding anything other than interest) will have accumulated Rs. (a) 41298.71 (b) 42918.71 (c) 42819.17 (d) 49281.17 69. To calculate dependency ratio the population is to be taken into consideration (a) Over and above age 60 (b) Unemployed individuals (c) Children below age 15 (d) Both a & c CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 97

70. Loyalty towards employer is one of the factors influencing (a) prospects in career (b) bonded relationship (c) career stability (d) protection 71. Trade unionism in developing countries largely affects the decisions in regard to (a) Pay packages (b) Protection to employees (c) Redundancy (d) Productivity 72. Individual insurance is contract between (a) Individual insured and insurance company (b) Group of people and insurance company (c) Between two friends (d) None of the above 73. In case of group insurance the most important feature is (a) Group cover is granted after full medical check up. (b) After the evidence of insurability (c) Without medical examination and other forms of evidence of insurability. (d) A and b above 74. Under group insurance (a) Separate contract is made for every individual (b) A group of persons under single master contract (c) Only 5 people under each contract (d) None of the above 75. Under group insurance who are parties of the contract (a) Individuals and employer (b) Insurer and individuals (c) Employer and insurance company (d) Trustee or labour union or an association or creditor debtor and insurance company (e) All the above CFP Level 2 - Module 1 – Retirement Planning - Workbook Page 98

76. The cost of group insurance is individual insurance as it provides mass protection. (a) Higher than (b) Lower than (c) Equal to (d) None of the above 77. Group underwriting is less expensive to individual underwriting because (a) Group selection process requires health questionnaires, medical examinations or inspection reports to establish insurability. (b) Administration is economical. (c) Group is of healthy individuals without any illness or deformity a & b above (d) None of the above 78. Another special feature of group insurance is the premiums charged (a) from year to year according to the ages in the respective years and will increase for every member as his age goes up and are subject to experience rating. (b) Once in two years according to the ages of members (c) Premium does not change according to age and experience rating (d) Premium changes irrespective of age and experience rating 79. Group insurance contract is continuous contract because (a) It is mandatory by law (b) New persons are added to the group from time to time and nobody exits from the contract unless death occurs. (c) New persons are added to the group from time to time and exit from employments result in termination of cover and employer’s overall employee welfare plan it is rarely discontinued. (d) None of the above 80. Among the following plans which are not a group insurance plans? (a) Group Life & Health Insurance Plans (b) Group Disability Income Plan (c) Workers’ Compensation (d) Householders’ Package Policy 81. The purpose of Group gratuity scheme is to provide Page 99 (a) Periodical survival benefits to the group of employees (b) Periodical death benefit to the family members of insured person CFP Level 2 - Module 1 – Retirement Planning - Workbook

(c) lump sum benefit to the group of employees on their retirement from the Service or leaving the job after attaining specified years of continuous service. (d) A and b above. 82. The payments of Gratuity is mandatory to the employers (a) who have at least 30 employees (b) who have less than 5 employees but less than 10 employees (c) who have 10 or more than 10 employee strength (d) all the employers irrespective of employee strength 83. Under the payments of Gratuity Act 1972, the payment of gratuity is mandatory to the employees (a) Where the 10 or more than 10 employee strength and employees leaving service after rendering at least 5 years of continuous service. And the minimum service is necessary in case of death or disablement. (b) Where the 10 or more than 10 employee strength and employees leaving service after rendering at least 7 years of continuous service. And the minimum service is necessary in case of death or disablement. (c) Where the 10 or more than 10 employee strength and employees leaving service any time after completion of one year. (d) None of the above 84. The amount of gratuity payable under the act is (a) @15 days’ wages based on wages last drawn for each year of Service subject to maximum gratuity Rs. 20, 00,000. (b) @30 days’ wages last drawn subject to maximum of Rs. 500000 (c) Lump sum Rs. 3,50,000 at the time of retirement (d) None of the above 85. In India payment of a regular superannuation income to the employees of any Organization is (a) A statutory obligation. (b) not a statutory obligation (c) a social obligation (d) not voluntary obligation 86. There are types of superannuation schemes are available viz . Page 100 (a) 2, cash purchase scheme and benefit purchase scheme. (b) 3 , cash purchase, benefit purchase, and Cash + benefit CFP Level 2 - Module 1 – Retirement Planning - Workbook