diff --git a/docs/migrate.md b/docs/migrate.md
index 33aa847c6..5504ffd9b 100644
--- a/docs/migrate.md
+++ b/docs/migrate.md
@@ -4,9 +4,11 @@ Version 2.0 changes some default settings and removes deprecated fields. Please
 
 ## scram-sha-256 by default
 
-The new operator will default password encryption to `scram-sha-256`. Unless you configure `password_encryption: md5` in the manifest under `spec.postgresql.parameters` the operator will encrypt existing passwords in the secrets with `scram-sha-256` and alter the database passwords. Make sure that your used clients and drivers support `scram-sha-256` as pods will get rotated in rolling fashion after updating to Postgres Operator v2.
+The v2 operator will default password encryption to `scram-sha-256`. Unless you configure `password_encryption: md5` in the manifest under `spec.postgresql.parameters` the operator will encrypt existing passwords in the managed K8s secrets with `scram-sha-256` and alter the respective database users. Make sure that your clients and drivers who rely on these credentials support `scram-sha-256` as pods will get rotated in rolling fashion after updating to Postgres Operator v2.
 
-The default Spilo image (`spilo-18:4.1-p2`) still configures the pg_hba.conf file to allow `md5` passwords but Postgres will validate `scram-sha-256` passwords correctly. Passwords of users that are not managed by the operator and are still `md5` encrypted need be altered before the next tagged Spilo image which will drop `md5` completely.
+For backwards compatibility, the current default Spilo image (`spilo-18:4.1-p2`) still configures the pg_hba.conf file to allow `md5` passwords but Postgres will validate new `scram-sha-256` passwords correctly. This means you can switch to `scram-sha-256` for manifest users, while still allowing unmanaged users to connect via `md5`. The compatibility does not work for connections via pgBouncer that rely on `md5`. In this case you have to configure `password_encryption: md5` in the manifest.
+
+In general, make sure to alter passwords of users that are not managed by the operator and are still `md5` encrypted before the release of next tagged Spilo image which will drop `md5` completely.
 
 ## K8s Endpoints are deprecated
 
diff --git a/pkg/cluster/cluster.go b/pkg/cluster/cluster.go
index d65aae20d..fa798c4d7 100644
--- a/pkg/cluster/cluster.go
+++ b/pkg/cluster/cluster.go
@@ -137,10 +137,7 @@ func New(cfg Config, kubeClient k8sutil.KubernetesClient, pgSpec acidv1.Postgres
 	podEventsStore := cache.NewStore(keyFn)
 	podEventsQueue := cache.NewFIFO(keyFn)
 
-	passwordEncryption, ok := pgSpec.Spec.PostgresqlParam.Parameters["password_encryption"]
-	if !ok {
-		passwordEncryption = "scram-sha-256"
-	}
+	passwordEncryption := passwordEncryptionFromSpec(&pgSpec.Spec)
 
 	cluster := &Cluster{
 		Config:         cfg,
@@ -158,7 +155,7 @@ func New(cfg Config, kubeClient k8sutil.KubernetesClient, pgSpec acidv1.Postgres
 			Streams:           make(map[string]*zalandov1.FabricEventStream),
 		},
 		userSyncStrategy: users.DefaultUserSyncStrategy{
-			PasswordEncryption:   passwordEncryption,
+			PasswordEncryption:   string(passwordEncryption),
 			RoleDeletionSuffix:   cfg.OpConfig.RoleDeletionSuffix,
 			AdditionalOwnerRoles: cfg.OpConfig.AdditionalOwnerRoles,
 		},
diff --git a/pkg/cluster/connection_pooler.go b/pkg/cluster/connection_pooler.go
index 89325e1fc..4a05a1143 100644
--- a/pkg/cluster/connection_pooler.go
+++ b/pkg/cluster/connection_pooler.go
@@ -253,6 +253,8 @@ func (c *Cluster) getConnectionPoolerEnvVars() []v1.EnvVar {
 	minSize := defaultSize / 2
 	reserveSize := minSize
 
+	passwordEncryption := passwordEncryptionFromSpec(spec)
+
 	return []v1.EnvVar{
 		{
 			Name:  "CONNECTION_POOLER_PORT",
@@ -262,6 +264,10 @@ func (c *Cluster) getConnectionPoolerEnvVars() []v1.EnvVar {
 			Name:  "CONNECTION_POOLER_MODE",
 			Value: effectiveMode,
 		},
+		{
+			Name:  "CONNECTION_POOLER_AUTH_TYPE",
+			Value: string(passwordEncryption),
+		},
 		{
 			Name:  "CONNECTION_POOLER_DEFAULT_SIZE",
 			Value: fmt.Sprint(defaultSize),
@@ -912,6 +918,8 @@ func (c *Cluster) needSyncConnectionPoolerDefaults(Config *Config, spec *acidv1.
 		return false, reasons
 	}
 
+	authTypeFound := false
+	passwordEncryption := passwordEncryptionFromSpec(&c.Spec)
 	for _, env := range poolerContainer.Env {
 		if spec.User == "" && env.Name == "PGUSER" {
 			ref := env.ValueFrom.SecretKeyRef.LocalObjectReference
@@ -935,6 +943,22 @@ func (c *Cluster) needSyncConnectionPoolerDefaults(Config *Config, spec *acidv1.
 				env.Value, config.Schema)
 			reasons = append(reasons, msg)
 		}
+
+		if env.Name == "CONNECTION_POOLER_AUTH_TYPE" {
+			authTypeFound = true
+			if string(passwordEncryption) != env.Value {
+				sync = true
+				msg := fmt.Sprintf("pooler auth type is different (having %s, required %s)",
+					env.Value, passwordEncryption)
+				reasons = append(reasons, msg)
+			}
+		}
+	}
+
+	// env var is missing on deployments created before it was introduced
+	if !authTypeFound {
+		sync = true
+		reasons = append(reasons, "pooler auth type env variable is missing")
 	}
 
 	return sync, reasons
diff --git a/pkg/cluster/k8sres_test.go b/pkg/cluster/k8sres_test.go
index 6cb0e085c..3200dc2e7 100644
--- a/pkg/cluster/k8sres_test.go
+++ b/pkg/cluster/k8sres_test.go
@@ -539,13 +539,14 @@ func TestCronjobEnvironmentSecretVariables(t *testing.T) {
 
 func testEnvs(cluster *Cluster, podSpec *v1.PodTemplateSpec, role PostgresRole) error {
 	required := map[string]bool{
-		"PGHOST":                 false,
-		"PGPORT":                 false,
-		"PGUSER":                 false,
-		"PGSCHEMA":               false,
-		"PGPASSWORD":             false,
-		"CONNECTION_POOLER_MODE": false,
-		"CONNECTION_POOLER_PORT": false,
+		"PGHOST":                      false,
+		"PGPORT":                      false,
+		"PGUSER":                      false,
+		"PGSCHEMA":                    false,
+		"PGPASSWORD":                  false,
+		"CONNECTION_POOLER_MODE":      false,
+		"CONNECTION_POOLER_PORT":      false,
+		"CONNECTION_POOLER_AUTH_TYPE": false,
 	}
 
 	container := getPostgresContainer(&podSpec.Spec)
diff --git a/pkg/cluster/types.go b/pkg/cluster/types.go
index 06c1674e3..da3fd29f6 100644
--- a/pkg/cluster/types.go
+++ b/pkg/cluster/types.go
@@ -82,5 +82,23 @@ type InstallFunction func(schema string, user string) error
 
 type SyncReason []string
 
+// PasswordEncryption is the password hashing method used by Postgres and the pooler
+type PasswordEncryption string
+
+const (
+	PasswordEncryptionMD5         PasswordEncryption = "md5"
+	PasswordEncryptionScramSHA256 PasswordEncryption = "scram-sha-256"
+)
+
+// passwordEncryptionFromSpec returns the password_encryption parameter, falling back to scram-sha-256 for unset or unsupported values
+func passwordEncryptionFromSpec(spec *acidv1.PostgresSpec) PasswordEncryption {
+	switch pe := PasswordEncryption(spec.PostgresqlParam.Parameters["password_encryption"]); pe {
+	case PasswordEncryptionMD5, PasswordEncryptionScramSHA256:
+		return pe
+	default:
+		return PasswordEncryptionScramSHA256
+	}
+}
+
 // no sync happened, empty value
 var NoSync SyncReason = []string{}
diff --git a/pooler/pgbouncer.ini.tmpl b/pooler/pgbouncer.ini.tmpl
index 285caac36..123c39e70 100644
--- a/pooler/pgbouncer.ini.tmpl
+++ b/pooler/pgbouncer.ini.tmpl
@@ -13,7 +13,7 @@ stats_users = $INFRASTRUCTURE_ROLES
 auth_dbname = postgres
 auth_file = /etc/pgbouncer/userlist.txt
 auth_query = SELECT * FROM $PGSCHEMA.user_lookup($1)
-auth_type = scram-sha-256
+auth_type = $CONNECTION_POOLER_AUTH_TYPE
 logfile = /var/log/pgbouncer/pgbouncer.log
 pidfile = /var/run/pgbouncer/pgbouncer.pid