The Insisute of Directors today welcomed the proposed provision of a universal basic state pension at the current Pension Credit level, with means testing to be abolished.

John Rider, West Midland chairman, said: "The current arcane and 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 devil will be in the detail, of course, particularly about funding implications, but the direction of travel is clear.

"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 begins from 2012. Furthermore, if people are clearer about what they will get, they have an incentive to save beyond that level if they want a better retirement than the state alone will provide.

"For low earners, the basic state pension will provide a better income replacement rate than it does today. This is, on the face of it, the best news in pensions I have seen in the last five years.

"In the process we need to get rid of as much red tape weighing down on business as possible, something that needs to be done across the whole range of matters affecting companies."