The National Pension Plan and the Armed Forces Pension Plan are the two but separate pension schemes covered under the National Pension & Provident Fund Plan. The National Pension Plan currently covers salaried national employees such as civil servants, employees of the State Owned Enterprises and Joint Sector Companies. The Armed Forces Pension Plan covers the members from the Police and Military.

Both the schemes evolved out of the earlier Government Employees Provident Fund Scheme managed and administered by Royal Insurance Corporation of Bhutan. The GEPF scheme, which provided lump sum benefit on retirement, proved to be insufficient and inadequate instruments for old-age security, especially in Bhutan with a capital market and insurance development in an early stage. Empirical evidence showed that the lump sum amount received from such scheme barely covered the expenses of the retirees for a short period (over a period of three to four years) after retirement. Most retirees were then left without any regular income to support their livelihood thus forcing them either to look for some sort of menial employment or depend on the income of the children.

The inadequacy of this lump sum payment prompted the Royal Government to initiate a formal old-age income security System by restructuring the GEPF Scheme into a multi-tiered retirement plan. An annuity based pension plan was one of its main component and was aimed at providing:

• Post service retirement pension benefits to its Members;
• Income security in the event of permanent disability;
• Social support to spouse(s) and dependent children in the event of the death of a Member; and
• Compulsory savings plan for the salaried Employees.

The Plan is, therefore, aimed at providing old age pensions (a social safety net involving redistribution from the higher income to the lower income brackets) and a savings vehicle (to allow individuals to distribute their own income across their lifetimes to avoid poverty in old age).

The Plan commenced payment of pension benefits to the retiring members with effect from 1st July 2002. Three beneficiaries were awarded the first pensioners certificate by His Excellency, Lyonpo Khandu Wangchuk, the then Head of the Government, as an auspicious token to mark the commencement of pension benefit payments during the inaugural ceremony of the NPPF held on 3rd July, 2002.