A new single weekly flat rate of £144 for all pensioners (the actual figure will rise to take account of inflation once the changes come into force in April 2017) will replace the current system, which is considered unnecessarily complicated. .
Currently, the full state pension is £107.45 a week. However, it can be topped-up with pension credit and by the state second pension, bringing it to a maximum of £142.70 a week.
By merging the state second pension with the basic state pension, the government hopes to make the system easier to understand.
The new single tier payment will be equivalent to an income of nearly £7,500-a-year in today's money and will particularly benefit women, low earners and the self employed, according to the government.
Analysis by Prudential revealed that to generate the same £144 a week, a 65-yeear-old retiree would require a private pension pot of up to £130,000, assuming they are able to get the highest possible single life annuity without a guarantee.
"Good for women"
David Cameron, Prime Minister, said the changes "will help a lot of women and a lot of lower paid workers who otherwise wouldn't get a decent state pension.”
Iain Duncan Smith, work and pensions secretary, added: "This reform is good news for women who for too long have been effectively punished by the current system.
"The single tier will mean that more women can get a full state pension in their own right and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family."
Steve Webb, pensions minister, said the current system, which "leaves millions of people needing means-tested top-ups", will be replaced with one that provides "a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save".
However, the pension will be paid only to those reaching the state pension age from a date to be set in April 2017, meaning existing pensioners and anyone who reaches the state pension age before then will have their pension under the current system.
The National Pensioners Convention (NPC) expressed concern, saying the plan is little more than a "con trick" for future generations as it will offer them less than they get now, yet ask them to contribute more and work longer before drawing their money.
Dot Gibson, NPC general secretary, said: "The outlook for future generations of pensioners is even worse. They are being asked to pay an extra five years' worth of National Insurance (NI) contributions, work longer before they can retire and end up with less than they can get today."
Brian Strutton, the GMB union's national secretary for public services, also expressed concerns that the proposals could have "very serious consequences" that may scupper public sector pay deals.
He explained that the increase in NI contributions that those in defined benefit pension schemes will have to pay "will impose a £6 billion new tax burden on workers and companies which is not fair to those who will have to pay more tax.
"For employers, that is 3.4% of the NI ranking earnings and for the six million employees affected it will be an extra 1.4%," he said.