The report, by the Adam Smith Institute, a right-wing think-tank, will find favour with Michael Portillo, Chief Secretary to the Treasury, who at the weekend revealed the state pension could be phased out for the over-40s.
Mr Portillo's admission in a television interview that the state pension was no longer sacrosanct, indicates how seriously the Government is considering reducing the cost of the welfare state.
Forcing people to take out private pensions and abolishing the state pension could not be achieved overnight. Under the present 'pay as you go' system, today's workers pay for today's pensioners through National Insurance contributions.
The Government could not force or allow everyone to opt out of the state system - and withdraw NI contributions - as there would not be enough people paying NI to cover existing pensioners.
So the Government must find a formula for encouraging a sufficient number of people to opt out and enough to stay in the state system.
The Adam Smith Institute report suggests that the first group of people to be invited to opt out would be over 50, and the age limit could be gradually reduced.
It recommends that people should be given an incentive in the form of a reduced NI contribution to make private provision. Another alternative would be for people over 40 to be given 50 per cent of all the National Insurance contributions they had made to invest in a private pension scheme.
The report proposes that people could buy a 'package' of insurance for invalidity and unemployment.
Eamonn Butler, director of the institute, said people could pay into the scheme when they were in work and draw out when they needed it.
Mr Portillo is known to be considering similar ideas and he is believed to have taken soundings from the insurance industry, mutual societies and friendly societies.
The report also proposes privatising the Benefits Agency. Dr Butler said a number of companies and friendly societies were interested in taking over the payment of benefits such as invalidity benefit. They would assess a person's eligibility to it, and periodically review their continued entitlement to it.