The current state pension is £97.65 a week, but can be topped up to £132.60 with pension credit. This is likely to be replaced by a new £140 flat rate, with inflation expected to push this up to £155, by 2015 or 2016.
In the report, pensions minister Steve Webb, said: "It is right that people are asked to take responsibility for their retirement by saving while they are working. But to do this we need a simple and fair state pension, which acts as a foundation for building up retirement income and rewards people for taking responsibility.
"We need to think about the pensioners of the future, who will live and work for longer, and are much less likely to have generous final salary pensions. Automatic enrolment into workplace pensions with minimum employer contributions from next year will help future generations to build up private pension saving. But the state pension needs to do its bit by providing a basic income that people know they will be able to rely on - so they can make decisions about how much more they need to save for their retirement.
"The complexity of the current state pension is a major barrier to saving. It means that few people have a clear idea of what their state pension will be worth when they retire.
Not only that, the current system actually discourages saving, because the extent of reliance on means testing means that people cannot be sure they will benefit from the savings they put aside."
"Through this consultation paper I seek views and contributions to the debate from anyone who has an interest: members of the public, employers and pension providers.
"Over the coming months I will be going out and talking to as many people as possible about what they think the state pensions system should look like in the future."
Commenting on the document, Marc Hommel, pensions partner at PwC said: "It's refreshing to have some positive pensions news - any simplification of the current complexity is to be welcomed. The proposed flat-rate state pension provides employers and their workers with greater predictability and clarity on future retirement income, and will help both to more easily plan additional retirement provision.
"The proposals to end means-testing also make much more workable the requirements to automatically enrol employees into quality pension arrangements. It's encouraging that the Government is working to ensure state and workplace pensions are fundamentally connected."
But he added: "We hope that the Government will make it easy for employers to change their own pension arrangements to link future retirement ages to longevity in the same way as is being proposed for state pensions.
"At long last, employers can now get on with formulating their policies for retirement provisions, taking into account the raft of new legislation and other proposals that have removed the default retirement age, simplified state pensions and ended means-testing, and introduced flexibility in form and timing of taking retirement savings. There is more opportunity now for employers to flex their imagination and design retirement saving arrangements that offer both employers and their workers a better and more appropriate deal."
The National Association of Pensions Funds (NAPF) also welcomed the announcement. Its chief executive Joanne Segars (pictured) said: "We've endured one of the meanest state pensions in Europe for far too long. This is a turning point for the UK's pension system. Millions will enjoy a simpler, more generous pension which sets a foundation for them to plan their retirement.
"For the first time in a generation, people will know that it pays to save. Whatever they manage to put aside won't be eroded by means-testing in their retirement.
"The current system is not only unfair, it's a complex mess. Even pension experts struggle to calculate their own state pension from a jigsaw of payments and credits. "The NAPF has fought long and hard for a better state pension, and today is a clear step forward. We look forward to sharing our thoughts with the Government on this vital piece of legislation.
"The end of 'contracting out' by defined benefit pension schemes is an inevitable part of simplification. But the Government must make an early promise that it will make it simpler for schemes to contract back in. It must not load extra costs and red tape on these pension schemes, which are under severe pressure."
