Campaigners have criticised the government for limiting the state pension rise to inflation next year.
The state pension currently increases in line with inflation
It will be worth £90.70 for individuals and £145.05 for couples from April, the Pensions Minister confirmed, a rise of £3.40 and £5.45 respectively.
Pension credit, which rises in line with earnings, will guarantee a minimum weekly income of £124.05 for a single pensioner and £189.35 for a couple.
Pensioners' groups have called the increases "insulting".
Delivering the annual benefits uprating statement to Parliament, Mike O'Brien told MPs the increases in the state pension and pension credit would make a real difference.
"From April next year, no single pensioner should live on less than £124.05 a week and no couple on less than £189.35, a rise of £57 for a single pensioner and £85 for couples since 1997," he said.
From 2008 pensioners would be able to claim up to four benefits - pension credit, state pension, housing benefit and council tax benefit - through one phone call, he said.
"The changes we intend will make the system less confusing, less intrusive and more transparent," he said.
"We want the customer to get their state pension entitlements with a minimum of fuss, bureaucracy and form-filling."
About 50,000 pensioners are expected to benefit from the changes by 2010.
They will be funded by reducing the period for which pension credit can be backdated from 12 to three months.
The government also unveiled measures to allow pensioners to spend longer periods abroad before losing their entitlement to pension credit.
The limit will be increased from four weeks to 13 weeks, bringing pension credit into line with the rules for housing benefit and council tax benefit.
But pensioners' groups have criticised what the National Pensioners Convention (NPC) called a "derisory" increase.
"In effect 3.9% is no real rise for pensioners, because it will be eaten up by rising council tax and energy bills," said NPC spokesman Neil Duncan-Jordan.
"To suggest £3.40 is a rise is little short of insulting. It will do nothing to tackle pensioner poverty."
The NPC is calling on the government not to wait until 2012 as planned to restore the link between the state pension and earnings. It argues that three million of today's pensioners will die before then.
It also wants the government to increase the level of the basic state pension to the level of the minimum income guarantee part of the pension credit.
"The restoration of the earnings link will only make a meaningful difference if is applied to a larger starting amount," Mr Duncan-Jordan added.
Age Concern said there were still 1.8 million older people living in poverty, many of whom were missing out on means-tested benefits to which they were entitled.
"The government must do much more to get vital benefits cash to those who need it the most so that all pensioners can afford a decent quality of life," said its director general Gordon Lishman.
Mr O'Brien told MPs that "targeted support from pension credit and £11bn worth of extra funding" had already lifted a million pensioners out of poverty.