during annual checks

Most of north america doesn't do that. Some place require a safety check to initiate insurance, after that most just wait for things to break or get pulled over by a cop/ministry of transportation.

Im also a little iffy about #2. We already subsidize drivers enough, making them pay for their lights or at least partly pay sounds reasonable.

I think a middle ground solution would be add the regulations for new cars and enforce the regulation when a noncompliant car changes owners. This way buyers of used cars should be able to research if that cost is likely to impact their model or not. It doesn't take all the headlights off the road at once but it starts phasing out the problematic cars.