Here is a solution to the economic crisis descending upon the UK. Here is a solution to the debt bubble, that could create a once and for all reduction in personal borrowing across the UK, and which will not create debt elsewhere.

But before you get too excited, be warned, it’s controversial. It comes with an obvious disadvantage – but, look a bit deeper, and even this downside may not apply.

The solution: all those indebted UK consumers could pay off their crippling credit card loans, or pay off the negative equity portion of their mortgage – by using money they forgot they already had.

What is this panacea? Well, it is simple enough. Let people dip into their pension savings before their retire.

Woah.

That would be suicidal, of course. The UK sits on a demographic time bomb. In 2011 the first of the baby boomers will be 65. Within a few years there will be more people retiring each year than indigenous people entering the workforce. We desperately need to see savings rise. We need to get people saving more, piling more into their pension, so the last thing you should do is allow early access to pension money.

Yet, according to the Pensions Policy Institute (PPI), allowing limited earlier access to money saved in pension schemes under specific circumstances, such as in times of financial hardship, might increase the number of people saving in a pension scheme and the amount they save.

It’s not a clear-cut argument. It appears that allowing early access to money saved in pension schemes can reduce the amount people save. But, on the other hand, there are occasions when it can work the other way.

Actually, when you think about it, it’s obvious.

If you are in debt, and the cost of servicing your debts is crippling you, then access to your pension savings could make you better off, and in turn then allow you to make bigger contributions in the future.

There is a downside to contributing to your pension. How can you be sure you won’t need the money saved a few years later? Maybe if the system were more flexible, people would be more willing to put money aside.

Chris Curry, PPI Research Director, said: “There are many different possible ways of allowing access to savings within pension funds, and some are already in use internationally. The 401(k) system of loans is well established in the US, and evidence suggests that this early access increases both the number of people saving in 401(k)s and the amount they save, even though only around 20% of people make use of the early access facility each year.

“If a similar system were introduced in the UK, this could increase aggregate pension savings by around 30 per cent by 2050. However, if people in the UK didn’t increase their contributions, or didn’t repay their loans, then pension funds could be 7 per cent lower.”

It’s counter-intuitive, but more saving is not the means by which the UK can fund its burgeoning pension problem.

They key to funding a happy retirement for the UK’s ageing population lies in the UK’s future production capacity.

To understand that, see it in reverse. Assume the UK’s populace diligently saved, and when people retire they start tapping into their savings. What will they buy with these savings? Answer: they will buy goods and services either made in the UK or imported from abroad. In the long term, the UK must export as much as it imports. So, in other words, production must meet demand. If demand exceeds production, inflation will take off. Seen in this context, the level of monetary savings is almost irrelevant.

See it in terms of using one’s home as a pension. If this is an isolated occurrence, then that is fine. But supposing a significant number people see their home as their pension – as was happening until recently. Should baby boomers start accessing the equity in their homes en masse, demand will outstrip supply. Inflation will then set in, interest rates will go up, and house prices will fall until the spare equity all but disappears. This is the reason why this publication has argued for several years now that a surging housing market could be very damaging in the long-run, because it provided the illusion of wealth.

Ultimately, the factor that will determine the UK’s ability to fund the retirement of its baby boomers does not lie in how much we save, but in how successful the economy is.

Right now, for the economy as a whole, saving is a bad idea. The economy needs more spending, not less.