Jean Weeks, a former deputy head, insists she has not acted improperly and is counter-suing the Government with cash help from former colleagues.
The 58-year-old spent her entire career at FitzWimarc school in Rayleigh, Essex, rising to the position of deputy head.
She retired in May 1999 when that job was made redundant and began receiving early retirement benefits. But she continued to work at the school in a pastoral role and was called deputy headteacher by other members of staff.
The former maths teacher said she was permitted to continue at FitzWimarc during her retirement because she had a different job and was paid less.
However, Essex council ruled that she had acted improperly and referred her case to the DfES.
Mrs Weeks was made to leave the secondary school in March 2000: "I didn't even get to say goodbye to the pupils," she said.
As well as counter-suing the DfES, she is taking legal action against Essex and FitzWimarc's governing body for breach of duty and distress and financial loss.
The DfES said it could not comment on individual cases. But a spokeswoman said: "Where teachers have received payments from the pension scheme to which they are not entitled we have a duty to recover the money."
FitzWimarc school said that investigations by the authority and the DfES showed that Mrs Weeks had acted improperly and it was not culpable for her predicament.