The pavers might be a good temporary fix, but the picture of the retaining wall is concerning; it might be the angle in which the picture was taken, but the wall looks like it is cracked and possibly bowed, indicating failure. If it is, that, and the pool deck, may need addressing before the pool materials are replaced.

We have renovated many vinyl pools over the years and many just like this.

If you cut 12" around the perimeter of the concrete, it will surely settle and crack. The top of the pool wall is supporting the concrete pour. It's possible deck supports were installed when the pool was built.

On jobs like this we remove all the concrete and start new. Upgrading existing, adding lighting (nicheless LED's) if none, adding a dedicated line for a pressure side cleaner, and additional returns or even another skimmer.

Also, the pool has to comply with the National Electrical Code requirements specifically on bonding.

If the plan is for a stone coping, a new liner extrusion/bead receptor must fastened to the top of the pool wall after the existing aluminum coping is removed. This allows a stone coping to be set on top. A reinforced concrete footer around the pool's perimeter must be poured to support the stones.

A cantilever step should be used to allow stone coping to be set on top so you don't see the top of the step. Steps are available in colors other than white also.

Of course doing all this is a great expense. The new step planned most likely will not match with the existing style as they have changed over the years.

I agree also with the concern over the retaining wall. Proper drainage is very important around a pool.