Speculation that the state pension will be radically reformed to simplify the payments made has been welcomed by a leading commentator.

Ros Altmann, who recently became director general of The Saga Group, said reports of further changes to the state pension could mean a ‘pension revolution’ was about to occur.

Altmann said: “No details have been officially announced yet, but I suspect the idea is to introduce a flat rate state pension, which combines the basic and second state pensions into one payment of, say, £140 a week.”

A flat rate at that level would be just over the £132 pension credit level and significantly above the current basic state pension level of £97 a week.

Altmann said the current pensions minister Steve Webb might ‘finally be getting to grips with the inadequacies of the UK state pension’, and she criticised the current complex system which includes basic state pension, second state pension, state earnings related pension and graduated pension, as well as the means-tested pension credit.

“The increase in state pension age announced in the comprehensive spending review was supposed to be ‘fair’ because it was in exchange for a decent state pension. However, the current proposals for slowly raising the basic state pension each year would not be sufficient to really pay a ‘decent’ pension”, Altmann added.

Altmann’s comments followed an interview with the business secretary Vince Cable on the BBC where he indicated the Department for Work and Pensions was looking at radical reform of state pensions, moving away from means testing of the state pension to improve the reliability of the benefit.

Malcolm Small, director of policy at the Tax Incentivised Savings Association (TISA) said: “The current arcanely complex state retirement benefit architecture has long been due for improvement, and a universal, decent, basic state pension is something we’ve long argued for.

“The current system of means-tested retirement benefits acts as a disincentive to save in a pension for modest earners and this reform will be essential before auto-enrolment into pension savings begins from 2012.”

Small said if people were clearer about what they would receive from the state in retirement they had the clearest possible incentive to save beyond that level if they want a better level of retirement income.

© Fair Investment Company Ltd