Issues setting up/restoring older Apple Watches on iOS 13.4

I have an iPhone 11 Pro running 13.4.1. I have a Series 5 Watch that is paired - that's all fine. Something went wrong with my second (night) Watch that is a Series 1 during the last software update, so it reset.

Now in 13.4 when trying to pair this other watch, the option to 'Set up as a new watch' or 'Restore from backup' are not present at all. When trying to pair a new watch all I see is 'Update now' and Skip the Update and Exit Setup'.

The watch is updated to 5.3.6 (current version number on my Series 5 is 6.2.1), and when trying to update all it says is 'Your software is up to date', the only option being to cancel which in turn resets the watch again. Its an endless loop.

I've tried this with another spare Series 2 watch I have that had an older OS - same thing happened. Also tried with another older iPhone (also running 13.4) and could not pair either Series 1 or 2 watch to this phone either as the only watch.

So I am assuming iOS 13.4 has issues pairing watches currently running anything older than WatchOS 6.0?

After starting the new watch setup process I'm only shown this:

Then after software check I'm only shown this: