The plans will now be consulted on, but if introduced, will have major financial implications for those yet to retire. Here, we explain what the changes mean, and how they could affect you.
What is the government proposing?
The government has put forward two different options. The first is to accelerate plans to introduce a two-tier flat rate pension, under which people with 30 years of contributions in both the basic state pension and second state pension would be likely to retire on about £145 a week. This would be comprised of £97 from the basic pension and £49 from the second state pension.
More radically, the government's second option is to replace the current system with a flat-rate state pension worth around £140 a week.
Anyone with 30 years or more of National Insurance contributions would receive the full amount, making it far simpler to work out your retirement income. You will need a minimum of seven years' NI contributions to qualify for the new state pension.
Who would benefit most?
If the second option is introduced, qualifying couples would do surprisingly well as each would receive the flat rate pension. That means an income of £280 a week, compared to the £156.15 couples' rate at present, which is topped up to £202.40 for those who are eligible for pension credit.
The self-employed would also be better off, as with the first option they wouldn't be entitled to a second state pension, but with the second option they would be eligible for the £140 flat-rate pension.
Women will also benefit. At the moment, many don't qualify for the full state pension because they leave work to bring up children, so may not have a full NI record.
Why does the system need to change?
At the moment, the full state pension is £97.65 a week, which should be topped up to £132.60 with pension credits. However, pension credits are not automatically awarded and have to be claimed - leaving an estimated 1.6million people out of pocket and receiving less than £132.60 a week.
On top of that, there have been accusations that the present system penalises people who save for their retirement, by cutting the benefits they are entitled to.
Currently, some lower income pensioners find that their hard-earned private pension savings merely replace the state pension funding, meaning they have the same income as people who didn't bother to save.
Income in retirement is made up of a bewildering number of entitlements, making it hard for people to work out what they will be entitled to.
Secretary of State for Work and Pensions Iain Duncan Smith said: "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 off in work than on benefits and you will be better off in retirement if you save."
How soon could these plans be put into place?
As yet, there are no plans to implement this overhaul and the government will be consulting on its plans until June 24.
However, even if MPs support the changes, such a major change to the current system could take years to implement. The government aims to have these plans in place by 2015.
Will pensioners benefit from these changes?
The current plans will not change the system for existing pensioners, and will only affect those who reach state pension age after the plans have been put in place.
That means there could be a two-tier state pension system. One person could end up receiving a very different state pension entitlement to another simply because their birthday fell after the changes had come in.
What about current contributions to the second state pension?
Under the proposed plans, existing contributions would be honoured.
How will the country pay for these changes?
According to the green paper, there would be no increase in the public spending dedicated to state pensioners.
Are these changes fair?
One of the issues likely to be debated during the consultation period is whether or not the proposed changes are fair.
The idea that some pensioners will be better off than others simply because of the date they retire is likely to be a sore point for many. On top of that, the plans make no distinction between wealthy and poorer pensioners.
When can I claim my state pension?
State pension age is also an issue as people live longer in retirement, costing the state more.
The consultation will also look at developing a mechanism for setting the future state pension age, so that it can rise as life expectancy does.
It sets out two possible options - increasing the pensionable age through a formula that's directly linked to life expectancy, or increasing state pension age through a review.
This is on top of current plans going before Parliament to raise the state pension age to 66 in 2020.
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