It's not a bug, you can't change the number of members on the plan after you set it up. So if you set up a 1+1 subscription, you can't change it to 1+2 without cancelling I'm afraid.
It's not a bug in the same manner that a missing steering wheel in a car isn't a bug. Sure, maybe they didn't bother putting it in on purpose so it's semantically not a bug, but it should still be there for the system to be useful. It seems there are a lot of people who want to add family members but can't, so Spotify is losing a lot of money. Whoever made the decision that adding family members isn't important enought to bother with should to be fired.
Yes, it retains everything. It actually works better than expected. When you cancel your account: * it will operate normally until the expiration date * When the expiration date happens, you will not be able to play the list as normal but instead there will only be a shuffle option * You then go to the registration form and enter a new registration * You will have the option to enter any number of addition users * You will send each a invitation * They will accept the invitation to have their accounts activated with premium access