The review, ordered by the Abbott government in 2013, also recommends personalised "Passports to Work" to tell welfare recipients how their payments will change if they start work or increase their hours, to reduce people's fear about taking a job.

The final report of the review conducted by former Mission Australia head Patrick McClure was released on Wednesday, noting that "many" people on the dole would be better off under the new system.

It also stressed there should be measures in place to make sure "no individual moving from the old system to the new system will experience a reduction in their rate of payment".

Social Services Minister Scott Morrison praised the report as "very useful" and "visionary" but noted it provided a framework for change in the long-term, not in the next few years.

In a change from the draft report, which in June 2014 suggested a reduction to four major payments, the final version recommends that the primary payments be cut from 20 to five. They would consist of a working age payment, a supported living pension for people with a severe and permanent disability, age pension, child and youth payment and carer payment.

The working age payment would have three payment levels, depending on someone's disability and how much they could work or study.

In a further streamlining of the system, the report recommends a further review to cut down the existing 55 supplements to four categories of help with rent, the extra costs related to raising children, the extra costs related to young people living away from home to work and study, and assistance for caring for disabled people or the frail and aged.

In a move that mirrors New Zealand's approach to welfare, the McClure report recommends Australia adopts an "investment approach", which makes targeted investments in groups with the largest "lifetime liability" of being on welfare and builds their capacity to be independent.

To boost the adequacy of welfare, the review recommends adjusting payments through a "community living standards review" by a panel of experts every four years and an "automatic cost of living adjustment," such as the consumer price index or purpose-built index, every six months.

The review did not do any modelling for or suggest any budget for the proposed reforms. Mr McClure described the report, which was also headed up by Wesley Aird and Sally Sinclair, as providing a new "architecture" for a welfare system that had become too confusing and complex.

While Mr Morrison said the government would not yet provide a response, he singled out the New Zealand welfare model and said the government was considering it closely. He also flagged that the government would have more to say soon about the IT system that delivers welfare payments. Mr Morrison noted that the current system dated back to the 1980s and was like "the Walkman version of the payment system".

He is expected to make further comment about welfare reform during a National Press Club address on Wednesday.

The report was ordered by former social services minister Kevin Andrews in late 2013. It was initially expected to go to government around October 2014.

Labor seized on the report on Wednesday, claiming the government would use it as an excuse to cut payments.

"I have not doubt that given the government's track record, they will just be looking to cost cut vulnerable people who can't protect themselves from a mean, promise-breaking government," Opposition Leader Bill Shorten said.

The president of People with Disability Australia, Craig Wallace, welcomed the report's call for a disability and jobs plan, but said the government should not cherry pick the findings and only make savings out of them.

UnitingCare said it was encouraged by the findings.

"Australia needs a simpler, fairer and more adequate welfare system," national director Lin Hatfield Dodds said.

"We particularly welcome attention being given to the adequacy of payments people receive."

Other recommendations include:

• Income support should not generally be available to young people in their own right until they are 22 but go to their parents instead
• A new IT system to support welfare reforms that integrates with Australian Taxation Office data
• Phasing in changes to the number of welfare payments in stages
• A jobs plan and greater supports for people with disability and mental health conditions
• Integrated employment and mental health services 
• Initiatives to help young people go from school to work, through better relationships with employers, communities and businesses
• Reducing red tape around philanthropy to strengthen community capacity
• Careful, targeted use of income management (the approach where people's welfare payments are restricted)