The defender cost £2.3million when arriving from Middlesbrough in 1989, a British record fee at the time, and went on to win four Barclays Premier League titles with the club.
"I've got to say I was taken by surprise when I got a call on Tuesday night saying the rumours had started and the manager was set to announce his retirement," he admitted. "I didn't know how to react to it.
"I couldn't believe it. There has been no inkling he was going to do it but obviously he's been pondering it for a while and decided the time was right. He's leaving as a winner again."
Click the video above to see the full interview with Pally.