as the reference was about the employees time spent and their company i can undertsand why they would want to have some control over that.
just because you used plain paper does not remove the link to them.
just because it has your name on it is still effectively a reference from the company.
if i worked at, say, boots, and an ex employee gave me a reference - it would be a reference from boots - as that what the referece is about - me at boots.
if i found out that a nightmare employee of mine had been given a glowing refernce from another employee of mine - in the name of the work in my department - id be furious!
that you have retired is irrelevant - unless the reference was purely a personal one, about the employee as a friend...but it isnt.
however i agree they are being a bit over the top about it.... they have probably heard about this and are backtracking a bit