Women, carers and the self employed could be among the winners from the huge pension shake-up that could see a £155-a-week flat-rate state pension from 2015 or 2016.
Those who work for themselves currently get a lower state pension than employees as they do not build up entitlement to the second state pension as they often pay lower national insurance contributions (see the State Pension Boosting guide).
Meanwhile, women who take time off work to bring up and kids and carers do not build up entitlement to the second state pension as they do for the basic state pension.
Under the new plans, unveiled last night by Pensions Minister Steve Webb in a Green paper, the basic and second state pensions will be merged to create a single, simpler system.
The new regime is likely to be based on the number of years workers pay national insurance during their working life. At present, they need to have paid NI for 30 years to qualify for the full basic state pension.
Webb says: "[Under the proposals] a year is a year regardless of who you are and whether you are self employed or not."
However, the overhaul could mean many groups, such as the self employed, pay more NI to fund the higher pension payout. The Government unveiled plans in last month's Budget to merge tax and NI though any change is still years away.
Webb says the flat-rate pension will be £140 a week in today's money. However, as he says it is unlikely to come into force until 2015 or 2016 as "it will take many years" the true figure is likely to be around £155, taking inflation into account.
Existing pensioners and those who retire before the overhaul will see no benefit. Only those who retire on or after the implementation date will fall under the new regime. Everyone else will continue as now, often on lower payouts.
The present full basic state pension is £97.65 a week for individuals, topped up to £132.60 a week by pension credit for those who do not reach that threshold via other income.
Some also qualify for the second state pension, usually a lower sum than the basic pension.
However, the system is so complicated few people can work out how much second state pension they will get. Webb even said millions 'don't have a clue' about state pensions earlier this year.
Webb says there will still be a place for pension credit under the plans but fewer people would rely on it. The savings credit element of pension credit would go, however. This currently rewards some who have savings with extra income.
Anyone who has paid to boost their pension by topping up their national insurance contributions will be protected. Webb says the Government will "honour all contributions accrued under the current pensions system".
'Simple state pension'
He adds: "The current state pension system is dogged by complexity and confusion. It makes it very difficult to save for retirement and leaves millions of people relying on complicated means-tested support.
"I'm proud to bring forward proposals that will end the unfairness inherent in the system and secure a fair, decent and simple state pension fit for the 21st century. These reforms will transform pension saving in this country for millions of people."
In addition to plans for a flat-rate state pension, the Green Paper also includes proposals to keep the basic and second state pension as a two-tier, flat-rate system. However, it is thought that this option is unlikely to be used as the model going forward.
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