It is not mandatory to have TWRP which supports encryption for normal workflows, like: install Lineage 16, upgrade from 15.1 to 16, upgrade from one nightly build of 16 to another one. This can be done without TWRP decryption support.
a) Install Lineage 16 and upgrading from 15.1: can be done through “adb sideload” or from SD card, or I think from /cache - if that’s big enough (never tried myself).
b) Updating from one nightly build to the next: can be done through the Lineage Updater and does not require a recovery that can decrypt - if this does not work, it’s a bug in either FP2 lineage or twrp.
What cannot be done without TWRP with decryption:
a) access and backup data from twrp
b) store a downloaded lineage zip and install it (when downloaded through browser).
PS1: What apparently also does not work at all (nothing to do with twrp) is upgrading from 14.1->15.1->16 with an ecrypted data partition.
PS2: Yes, there’s also a normal “lineage” recovery (but lineage does not deliver them through download afaik). This lineage recovery does not support encryption, but it does support the above workflows. It can be compiled from the lineage / android sources. If someone wants that, I can build it and upload it.