Request to update Apple ID and fail to recall very old passcode results in request to erase my end-to-end encrypted data

I’ve been asked to erase my end-to-end encrypted data due to unknown reasons, with unclear but potentially severe consequences, and with no possibility to learn and avoid this in the future because the reason is unknown. It all fails when the process asks me for an old iPhone passcode Apple never asked me to keep, and I cannot recall.

It started with a message on my iPhone, under Settings, to ”Update Apple ID Settings”. It asks for my ”Apple ID password”, then “Enter iPhone passcode”, and finally”Enter Old Passcode”, where I fail.

Selecting “Forgot passcode?” I get: ”If you can't remember the passcode for [my iPhone], you can approve this iPhone from one of your other devices signed in to iCloud, or you can reset your end-to-end encrypted data. I only get the option to ”Reset Encrypted Data” or ”Cancel”. Not option to approve this iPhone (or information on how to do it). Apple Support says it “should work” but cannot guide me in this case when the option is not there.

Apple Support don’t know why it happened or which of my many old passcodes I should have kept, so hard know how to avoid this in the future. Might be a recently added iPad, but it’s unclear. I have not changed anything on my iPhone. I use 2-factor authentication. I’m logged in to iCloud on a MacBook Pro, an iPad and a Watch.

The consequences of erasing the encrypted data is a severe loss of e.g. pwd and health data, so tough to do. (Photos, notes, etc is not affected). I've been trusting Apple a lot here for safe backups.

However, I can still access all information on my iPhone so I’m not even sure if I should do the reset. Apple Support suggest I just ignore the message, because they don’t know for sure what will happen, besides some loss of data. Will all my encrypted data stored in iCloud be erased, or only a subset of the data created under this old password? 

Can I erase the encrypted data as above, but since I’m still logged in to my iPhone then just create a new backup - and keep all data? Apple Support does not know either. And if I just ignore the request, will I have two sets of data, one in my iPhone and another on my iPad? Again, no one knows.

Anyone here who knows what to do?