The new LOA will ensure that our service personnel, and their families, receive a more accurate contribution to additional costs incurred when serving overseas.
From 1 July 2021, the way in which the Armed Forces’ Local Overseas Allowance (LOA) is calculated will be changing. The changes will make the allowance more transparent, fairer to all service personnel, and improve oversight. They do not impact eligibility or other allowances and are not a saving measure but designed to be cost neutral.
The changes are the result of a thorough review of the current methodology, in place since 1981, which has taken more than three years to complete. One of the most significant changes will be the introduction of a single band for all service personnel regardless of rank, removing the previous rank-based banding system.
The new methodology is based on commercially available data used by multi-national corporations as well as the Foreign, Commonwealth and Development Office (FCDO), and is needs-based. This modernisation means service personnel will see changes to the rates of LOA, which could increase, although some will decrease depending on the current rank-related level they receive and the location they serve. This new transparent system means the amount offered to service personnel will not be associated to rank. Rates will be published in June 21. The changes will be fully implemented over a three-year transition period.
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. However, any locations that see a significant reduction in the daily rate of LOA, will have their rates reduced over a period of up to three years (1 July 2021 to 1 July 2024). This transition is based on a (maximum) 25% of the difference between the existing and future rate each year. This will ensure that service personnel do not experience a single significant shift in the rate during the transition period. All increases in rates will immediately take full effect on 1 July 2021.
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. The new construct better reflects the actual costs incurred by service personnel and enables them to claim Vehicle and Respite provisions when they incur the costs. It will also be more fairly distributed across the ranks, to reflect that all personnel incur these same costs and rank is already reflected within Basic Pay. Currently, these two provisions are included in the overall LOA daily rate which is spread throughout the assignment. As such, when comparing the new LOA with the current it is important to compare the overall package rather than making a straight comparison between daily rates. These additional contributions will be accessible only to service personnel on permanent assignments overseas.
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 towards:
- depreciation costs when selling a vehicle and purchasing one at the overseas assignment location
- charges incurred, up to a capped rate, when cancelling a vehicle lease agreement due to an assignment overseas
- the expense of shipping one vehicle, up to a capped rate, 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.
Watch the new Overseas Private Vehicle Provision for Service personnel video. Please note: this video is best viewed on Google Chrome.
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 for those in receipt of LOA. 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.
For service personnel serving in North West Europe (France, Belgium, Netherlands and Germany), the Get You Home (Overseas) allowance will reduce from three journeys per year to one journey per year following the universal introduction of the Respite provision.
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.
Split Net Pay (update)
When the new LOA package was first announced on 1 February 2021, the policy included the cessation of Split Net Pay as a routine mechanism to transfer a portion of service personnel pay and allowances into an overseas bank account. Noting various factors such as the impact of Brexit on bank charges and transfers as well as the current international economic climate, the policy regarding Split Net Pay has been reversed. The new LOA package will have no impact on access to the Split Net Pay facility which will continue to be made available to service personnel in receipt of LOA.
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 reductions will be applied through a three-year phased transition, meaning these rates will reduce by a maximum of 25% of the initial difference between the current rates and the new rates per year between 1 July 2021 and 1 July 2024. All increases in rates will immediately take full effect upon implementation on 1 July 2021.
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.