I believe the immediate parent was talking about Face unlock outside of this update where the Watch is added. I have the same issue. Sometimes, (I guess?) it can tell I'm wearing a mask and pops up a number pad quickly, other times it authenticates my masked face, other times it just hangs trying to authenticate and after a few seconds I get a number pad.

FWIW I have a new Apple Watch and have this issue. I just installed the update so I haven't tested the Watch authentication. If it can't detect a mask I'll have the same issue as before waiting for a number pad.