So he doesn't want to ban encryption only useful, working encryption? Not sure that really changes anything.
As far as I can tell, he's not talking about banning anything.
Logically your alternative doesn't work - if I die and the password dies with me then SS can't read the communication.
If there's nobody alive who can read the encrypted message then nobody gives a damn what's in the message. The message effectively no longer exists.
But I should point out, this is not a law. This is not a bill.It's not a manifesto promise, or a promise of any sort. It's not policy. It's not even a pledge. It's a statement of intent in a speech. That's all! Attempting to fathom out exactly what the law's full implications will be from a vague speech is pointless. There isn't a law!
Those who can, do; those who can't, write. Those who can't write work for the Bell Labs Record.