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DIRECTIVE 2004/38/EC
Article 17 Exemptions for persons no longer working in the host Member State and their family members (my emphasis)
1. By way of derogation from Article 16, the right of permanent residence in the host Member State shall be enjoyed before completion of a continuous period of five years of residence by:
(a) workers or self-employed persons who, at the time they stop working, have reached the age laid down by the law of that Member State for entitlement to an old age pension or workers who cease paid employment to take early retirement, provided that they have been working in that Member State for at least the preceding twelve months and have resided there continuously for more than three years.

The Immigration (European Economic Area) Regulations 2006
"Worker or self-employed person who has ceased activity"
5. —(1) In these Regulations, "worker or self-employed person who has ceased activity" means an EEA national who satisfies the conditions in paragraph (2), (3), (4) or (5).
(2) A person satisfies the conditions in this paragraph if he—
(a) terminates his activity as a worker or self-employed person and—
(i) has reached the age at which he is entitled to a state pension on the date on which he terminates his activity; or
(ii) in the case of a worker, ceases working to take early retirement;
(b) pursued his activity as a worker or self-employed person in the United Kingdom for at least twelve months prior to the termination; and
(c) resided in the United Kingdom continuously for more than three years prior to the termination.

Persons exempted from the general rule on the right of permanent residence
[See DMG Memo 03/11] The general rule on the right of permanent residence requires that EEA nationals and their family members have resided in the UK for five years (see DMG 071240). Workers or S/E persons, and their family members, who have ceased activity acquire the right to reside in the UK permanently without that requirement. To be a ''worker or S/E person who has ceased activity'' a person must be an EEA national who either
1. stops working and
1.1 has reached the age at which he is entitled to a state pension on the
day he stops working or
1.2 if he is a worker, stops working to take early retirement and
2. was working in the UK for at least twelve months before stopping and
3. resided in the UK continuously for more than three years before stopping or
4. stops working in the UK because of a permanent incapacity to work and
4.1 has resided in the UK continuously for over two years before stopping or
4.2 the incapacity resulted from an accident at work or an occupational disease entitling him to a pension payable in full or in part by an institution in the UK
5. a person who was the family member of a worker or S/E person where 5.1 the worker or S/E person has died
5.2 the family member resided with him immediately before his death and
5.3 the worker or S/E person had resided continuously in the UK for at least two years immediately before his death or the death was the result of an accident at work or an occupational disease.
Where the spouse or civil partner of the worker or S/E person is a UK national the conditions on length of residence or time working will not apply.