iphone ios 8.3 not requiring password for purchases

I recently updated to ios 8.3 (late updater, I know) and have paired with an apple watch. Now it seems that my password settings have been overridden (although the actual password settings have not changed. I have my phone set up to the following:

General > Restrictions > Password Settings is set to 'Always Require' and 'Require Password' for Free Downloads.

Now, it my phone is not requiring the password to download apps (mainly free updates, have not tried purchasing yet). The only way I seem to be able to get around this is to turn off 'Installing Apps' and 'In-App Purchases' under General > Restrictions.

Anyone else having this issue?

Heather