I'm pretty sure that it's actually Sqn Ldr / Major / Lt Cdr level that you are entitled to use your rank in an honorific sense.
The practice if promoting on retirement no longer happens and hasn't happened for as long as I can remember it - certainly in the UK military. RN Captains above a certain level of seniority may be appointed Commodore for a specific posting, but unless that 'promotion' is substantiated they will revert back to Captain at the end of the tour.
The rank varies between services IIRC it is Maj in the Army. For the RAF it is Flt Lt (with 3 years on service on the Active List); the pertinent regulations are set out in QR3002.
3002. Retention of Rank by Officers on leaving the Active List. Sponsor: RAF Employment Policy
(1) An officer of the regular air force placed on the retired list or on the reserve will be shown in his substantive rank. An officer of the rank of flight lieutenant or above leaving the reserve, or having no reserve liability, may be permitted to use his rank as a courtesy title subject to clauses (7) and (8) and to completion of 3 years service on the Active List.
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