Flat-rate state pension: check whether you will be a winner or loser from 2016? The government's reform of the basic state pension will leave those currently under the age of 30 worse off by the time they come to retire, the Institute of Fiscal Studies warned today. So what are the reforms intended to do? And who are the winners a losers? What's the history and why the change? There are two parts to the government's reforms which come into effect in 2016. On the one hand the reforms re-establish the link between the basic state pension and inflation that was done away with in 1980 during Margaret Thatcher's first Conservative government. Pension reforms: The government's flat-rate pension reforms will see those in their twenties and thirties worse off when they retire than if the current system were still in place, said the IFS Inflation was 13.4 per cent in 1979, 18 per cent in 1980 and 11.9 per cent in 1981, one could perhaps understand why the government chose to do so - particularly given the hyperinflation of the mid-1970s. The government has now established the "triple lock," which will increase the state pension by whichever is the greater out of growth in national average earnings; inflation as measured by the consumer price index; or if neither of those measures is particularly high, by 2.5 per cent. The government hopes the new single-tier state pension will also eventually remove the need for pension credit. And it hopes various pensions rules regarding marriage, divorce and bereavement can be phased out over time too. The second part of the reforms will scrap the state second pension from 2016. This has been around in one form or another, and had three different names, since 1961. Essentially, SSP was designed to top up the basic state pension. The amount that you receive is calculated by the amount you pay in National Insurance contributions throughout your lifetime. But crucially SSP and its previous incarnation, the state earnings-related pension scheme, allowed you to "contract out" if you had a personal pension - although they were not officially called personal pensions then either, that didn't come until the 1986 Financial Services Act. Pensions changes: According to the IFS low earners born in 1986 will have to pay into a separate pension to fund their retirement in later life as the flat rate pension will be insufficient for their needs Contracting out allows you to receive a rebate on a certain proportion of your national insurance contributions, which is then invested into your private pension (whether that's your worked-based pension or a personal pension). This is the only way to receive the rebate, if you don't have a personal pension you cannot contract out, it's as simple as that. In fact, contracting out was designed specifically to encourage greater use of personal pensions with the government- already well aware of the impact a large aging population would have on its finances before the reform was introduced in 1978 - keen to encourage as many people into a private pension as possible. From April 2016, BSP and SSP will be replace by a "flat rate" - single tier pension of £146 per week. So who are the winners? Exactly how much people stand to gain or lose from the proposed reforms depends on how much state pension entitlement they have accrued by 2016 and what they would expect to build up afterwards in the absence of a change to the system. According to the IFS's analysis the biggest gainers, on average, are those who have spent long periods out of work or doing low paid work - a group which disproportionately comprises women - and the long-term self-employed. Winners Women: will on average will gain £5.23 per week, compared to £1.62 for men. The self-employed: Those with more than 10 years in self-employment will gain £7.51 per week on average, compared to £2.19 among those who have never been self-employed. Those who chose to contract out: People who opted out of paying into the earnings-related state pension will, on average, see larger gains than other individuals who did not choose to contract out. The poor: Low wealth groups are set to experience a larger increase in state pension income on average than higher wealth groups. The poorest 20 per cent of people will gain £3.97 per week on average, compared to £2.18 for those in the richest 20 per cent. The young: If you were born in the 1980s and want to benefit from the changes to the state pension then according to the IFS analysis your best bet is to start your own business. Almost everyone born after 1986 will be worse off regardless of national insurance contributions. The IFS found the only major exception was that the long-term self-employed would be the least worse off. Complex: As this table shows working out who will be better off or worse off under the government's reforms is a tricky business and depends on a large number of variations in individual circumstances Losers Men: Will on average gain £1.62 per week compared to women who will gain £5.23 per week. The employed: Will see gains of £2.19 per week compared to those who have been self-employed for 10 years or more who will see gains of £7.51 per week. The poor: Despite seeing a larger increase in state pension income on average than higher wealth groups those on the lowest incomes face a reduction in entitlement to means-tested pension credit, including an eventual plan to abolish pension credit altogether. As a result, while 40 per cent of people in the poorest fifth of the population will be better off from the reforms, 62 per cent of the richest fifth of the population will gain more as well. The young: The analysis showed the reforms represent a reduction in state pension income for almost everyone regardless of their national insurance contributions. The IFS said someone who was born in 1986 and spends 35 years as a low earner would receive nearly £1,000 per year less under the proposed new system than under the current system. This figure could be nearly £2,300 per year for a high earner of the same age, the IFS found, meaning they would have a greater need to save privately for their retirement.