Iain Duncan Smith signalled a move by the government to a flat-rate state pension in a speech today (8 March).
The work and pensions secretary said the government was looking at abolishing means testing and pensions credits.
Mr Duncan Smith claimed the current system was so complex that most people have no idea what any of this will mean for them now and in their retirement.
He argued means testing was demeaning and was known to put people off from making a claim, as well as acting as a disincentive to save.
Mr Duncan Smith said: "Too many people on low incomes who do the right thing in saving for their retirement find those savings clawed back through means-testing.
"When they reach pension age they discover that while they have foregone spending opportunities and made plans to be self-sufficient, others, who haven’t saved a penny, are able to get exactly the same income as them by claiming pension credit.
"We have to change this.
"We have to send out a clear message across both the welfare and pension systems – you will be better off in work than on benefits, and you will be better off in retirement if you save."
Mr Duncan Smith said he was seeking a debate on the next generation of pension reform.
He said: "I want a state pensions system fit for a 21st century welfare system, which is easy to understand and rewards those who do the right thing and save.
"My department has been working closely with colleagues at the Treasury on options for reform."
"As the Chancellor made clear late last year, he is keen to look at options for simplifying the pension system, and that is precisely what we are doing."
Maggie Craig, acting director general of the Association of British Insurers (ABI), said the ABI would strongly welcome plans to simplify the state pension to establish a flat-rate payment.
She said: "Ahead of the Budget the ABI has already written to the government urging them to take this step.
"The current system is complicated, confusing and leaves many people uncertain of the benefits of saving."
Joanne Segars, chief executive of the National Association of Pension Funds (Napf), claimed it was a turning point for pensions in the UK.
She said: "Radical state pension reform to create a single, simple and more generous state pension could take millions of pensioners out of poverty, and provide a firm foundation for saving for old age.
"For the first time in a generation, people would know that it pays to save.
"Today's commitment comes not a moment too soon."
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