Local Overseas Allowance (LOA)
The new LOA will ensure that our service personnel, and their families, receive a more accurate contribution to additional costs incurred when serving overseas.
Overview
From 1 July 2021, the way in which the Armed Forces’ Local Overseas Allowance (LOA) is calculated will be changing. Individual eligibility for LOA will remain the same and it will still be paid automatically alongside your monthly salary. However, the new method of calculating LOA rates means that service personnel around the world will find that the amount of LOA they receive may either increase, decrease or remain the same. LOA will continue to contribute towards the additional local cost of day-to-day living when you are assigned overseas.
As with all service allowances, LOA is reviewed periodically by the Armed Forces Remuneration Team with the aim of ensuring the allowance remains fit for purpose. The most recent review found several features of the current LOA package that need updating to ensure that service personnel receive a justifiable needs-based contribution to the additional cost of living when serving overseas. The new LOA package will ensure that our service personnel, and their families, will receive a more accurate contribution to additional costs incurred when serving overseas. The new LOA methodology also builds in transparency and improved governance to help safeguard the public purse.
Transitioning to the new LOA package
All service personnel receiving LOA on 30 June 2021 will automatically transfer on to the new LOA package on 1 July 2021. Locations that see a significant change in the daily rate of LOA (whether that be an increase or decrease), will have their rates changed over a period of up to three years (1 July 2021 to 1 July 2024). This transition is based on a 25% per year move to/from the initial difference between the current and new rates.
This phased implementation will apply to service personnel who are already stationed in an overseas location and those who are assigned to an overseas location after 1 July 2021. This will ensure that everyone in the same location will be on the same rate, appropriate to their accompanied status and LOA type.
The 25% transition is not a rigid rule, but rather a guide to ensure that service personnel do not experience a single significant financial impact from changes in LOA rates during the transition period. In every transition year, Defence Business services, in conjunction with the AF-Remuneration team and the single services will determine, on a case by case basis, whether the difference in rates for locations are close enough that they warrant an immediate shift to the new rates. Therefore, for some locations the transition may last the full three years while for others there may be an immediate transition to the new rates on 1 July 2021 or in subsequent transition years.
The New Local Overseas Allowance Package
The new LOA Package is made up of the LOA daily rate and two needs-based provisions that contribute towards your overseas private vehicle and respite (travel and accommodation) costs. Currently, these two provisions are included in the overall LOA daily rate however, from 1 July 2021, they will be paid separately at the point of expenditure based on an evidenced need. As such, when comparing the new LOA package with the current system it is important to compare the overall package rather than making a straight comparison between daily rates. For example, there will be some locations where the new LOA rates are lower but the value of the package, after claiming the Overseas Private Vehicle and/or Respite Provisions, might be of equal or greater value. These additional contributions will be accessible only to service personnel on permanent assignments overseas.
The new LOA will establish better governance as service personnel will only receive the vehicle and respite provisions as a lump sum payment upon submission of evidence. This will ensure that service personnel are better supported as they will be able to claim for these elements when they incur immediate one-off costs such as paying for respite travel and accommodation costs away from the assignment location. This improves upon the current LOA mechanism where vehicle and respite contributions are provided regardless of requirement and are spread throughout the course of the assignment within the daily rate.
The Daily rate
All service personnel who are eligible for LOA will receive a daily rate based on where they are serving overseas, which is paid alongside monthly salaries. The daily rate is comprised of three separate elements that address different types of additional costs related to living overseas. They are:
- Cost of Living (CoL): This element determines the difference in the cost of living between the UK and the overseas location
- Environmental Factor (EF): This reflects the lived experience overseas in comparison with that in the UK
- Location Factor (LF): This is a contribution towards additional expenses such as legally required items, banking charges and other necessary costs that are specific to the overseas location.
These three elements inform the LOA daily rate, which together with the additional contributions of the Overseas Private Vehicle and Respite provisions form the new LOA package. Figure 1 illustrates the various components of the new package:
It is important to remember that the daily rate will no longer be banded by rank. All service personnel will receive a single rate based on the cost of living in their respective locations; irrespective of rank. This will ensure parity among all service personnel serving in the same location when it comes to contributions towards their cost of living.
Distinctions will continue to be made for unaccompanied and accompanied service personnel. To further support those Service personnel with accompanying children, the child rate will be set to the maximum allowed by independent data.
The Overseas Private Vehicle Provision
Available from 1 April 2021, this provides service personnel with a contribution, up to a capped rate, towards:
- depreciation costs when selling a vehicle and purchasing one at the overseas assignment location
- charges incurred when cancelling a vehicle lease agreement due to an assignment overseas
- the expense of shipping one vehicle to and from their current duty station and the overseas assignment location
- Motor Mileage Allowance (MMA) and subsistence when driving up to two vehicles (accompanied personnel only) to an assignment location in Belgium, Denmark, France, Germany, Italy, Luxembourg, Netherlands, Spain, Gibraltar or Portugal.
Details on how to claim the Overseas Private Vehicle Provision will be released in separate communications.
The respite provision
A new Respite provision will be introduced to replace the Short Break Accommodation Package in Main Station LOA (commonly termed ‘Bett Nights’) which is currently paid as part of the daily rate. There is no equivalent for the current Small Station LOA, so this will be an additional provision available. The new provision will be available to all service personnel who are permanently assigned overseas and their accompanying immediate family. It will provide a financial contribution towards accommodation and travel costs when taking a short break away from the Duty Station. Depending on the conditions in, and isolated nature of, a location, the annual contribution will range between four and nine days respite.
The new Respite provision also replaces Respite Journeys (Remote Locations) which will cease as of 30 June 2021. There are no transitional arrangements for the Respite provision. Details on how to apply and the level of annual contribution will be released before the launch of the new LOA package.
Eligibility
Eligibility for LOA remains the same. It will continue to be paid to service personnel who are assigned overseas on permanent or temporary duty, seagoing or exercise. The new LOA package will not be applied to Defence Attachés and their support staff at this time. Instead these cohorts will remain on Cost of Living Addition (COLA) to maintain parity with existing FCDO arrangements.
Banking charges
From 1 July 2021, service personnel overseas will no longer be able to have a proportion of their pay (including allowances), paid into an overseas bank account in a local currency under ‘split net pay’ policy. Instead it will be the responsibility of service personnel to set up their own arrangements, such as a standing order, from their UK bank account if required. To alleviate transactional costs, a contribution towards banking charges will be included in the Location Factor of the new LOA daily rate.
What this means in practice
Rates will be available to service personnel from June 2021. When comparing current daily rates with the new rates, it is important to consider the overall value of the new LOA package. This is because the Overseas Private Vehicle and Respite provisions will no longer be included in the daily rate automatically but will instead be paid at the point of expenditure. Furthermore, the removal of rank-based banding will ensure parity among service personnel who are receiving LOA. The new package will be implemented on 1 July 2021, any significant rate changes will be applied through a three-year phased transition, meaning rates will change by a maximum of 25% per year between 1 July 2021 and 1 July 2024.
The new methodology uses a far more comprehensive and up to date approach to calculating the daily rate of LOA. Therefore, service personnel will receive a more accurate, better targeted contribution towards the expenses they face wherever they may be serving (accompanied or unaccompanied). Crucially, the revision of the LOA package will provide better support to service personnel by realigning key elements of the existing allowance as more transparent and auditable payments. The structural changes will reinforce the underpinning rationale for LOA, strengthen its governance, and improve equity in the treatment of all service personnel wherever they are serving overseas.