Data is still encrypted in that state. The passcode screen is not what is preventing access. That is how it works in Android (where a lockscreen is just an app that is locked into the foreground), but not iOS. Bypassing the iOS passcode entry screen gets you to a weird limbo-like state where a lot of thing don't work. I don't recall what that state is called.
The default protection class is "Protected Until First User Authentication". This means that unless an app says something more specific, the key required to read a file is not available between reboot and the first time a phone is unlocked.
FDE on Android still leaves a lot to be desired. It hardly stands up to Apple's implementation. The only time that any data is encrypted is when the device is off or a volume is unmounted.
