There is a major bug in retention policy. My organization has a retention policy applied on O365 groups, so the sharepoint sites associated with the O365 group also fall under the retention policy. Strangely we can still delete any O365 group but the SharePoint Site associated with it is not getting deleted automatically and gives warning/error "This site has a compliance policy set to block deletion". This has become a major concern for as the no of SharePoint sites created due to O365 groups are getting increased, though we are able to delete the O365 group but cannot delete the SharePoint Site.
I have opened a ticket with Microsoft and escalated it to the Product team, but they are also struggling to find out why this is happening. Moreover they themself are not aware of how exactly retention policy is working for O365 groups. Can anyone post his/her view on this.