Before decrypting - look in FileVault pref pane and see if there is an error about "not all accounts can decrypt this disk"
Clicking this let me supply pw's for the accounts. Once done for all bootable disks attached to the system the [update needed] entry on login window was gone for good. When I did it for my main boot disk (but befrore I booted the carbon copy cloned volume I also keep mounted) the login window showed my accounts again, but still listed the [update needed] entry, presumably because the boot shim on the unencrypted partion still didn't have credentials for all the bootable encrypted disks attached to the system...
Is FileVault (full disk encryption) enabled for your main disk? Because it was in my case, and it proved to be the cause of this error.
You can find this setting in System Preferences -> Security & Privacy -> FileVault. During the installation of OS X Yosemite, you can choose if you want to enable FileVault, and it's turned on by default. It's the first version of OS X where this is the default.
Some people think the "[Update Needed]" message has to do with a pending software update, but that's not the case. Your Mac boots from a small (always unencrypted) partition, which will show the login screen. User names and user pictures are normally stored there too, so they can be shown on the login screen. But when things have changed, and your main partition is encrypted, the bootup process can not get to this data as it has no access to your main partition, which is only unlocked after you enter your password.
To resolve this, you have to disable FileVault on your main partition, which is named "Macintosh HD" by default, and reboot afterwards. When the boot process has picked up your user name and picture, you can re-enable FileVault again.
Disabling and enabling FileVault can be done from the System Preferences pane mentioned above. You have to click the lock at the bottom of the pane and enter your password first before you can make changes. The process of decrypting and encrypting your drive can take a long time, depending on the amount of data stored on your disk. For me, it was about 1,5 hour to decrypt about 500 GB of data, and an little longer to re-encrypt it again. But you can continue working on your Mac while the decryption/encryption process goes on in the background.
So you should disable FileVault, wait for the decryption to end, and then reboot. Afterwards you can re-enable FileVault.