By Marcus Leach

The Government has announced its plans to reform the basic state pension by introducing a new universal flat-rate pension of £140 for future pensioners.

Two options were set out in 'A state pension for the 21st century', the Government green paper that will radically change the face of pensions in the UK.

The first option laid out would be an acceleration of existing reforms so that the second state pension moves to a flat-rate by 2020. Under this option contracting out would continue for members of defined benefit schemes.

Option two, the so-called “more radical” reform option, proposes moving to a single-tier, flat-rate state pension of around £140 a week at today’s prices. This would bring to an end means-testing for pensions, and replace the current system which combines the state pension with Serps payments.

To qualify for the single-tier pension there would be a seven year period of contributions, and to qualify for the full amount each individual would have to build up thirty years of National Insurance credits.

As has been the case previously both options would remain on a contributory system, and all contributions made under the current format would still be honoured.

“The current state pension is dogged by complexity and confusion, it makes it very difficult to save for retirement and leaves millions of people relying on means tested support," Pensions minister Steve Webb says.

"I am proud to bring forward proposals that will end the unfairness inherent in the system and secure a fair, decent and simple state pension fir for the 21st century. These reforms will transform pension saving in this country."

Work and Pensions Secretary Iain Duncan Smith says: “Over the years small changes to the state pension system have turned what started as a relatively simple contributory system into a complex mess, leaving people utterly confused as to what the state pension means for them. We have to send out a clear message across both the welfare and pension system: you will be better of in work than on benefits and you will be better off in retirement if you save.”