When the distance is too large, the magnetic field from the magnets in the disc doesn’t make the sensor pulse correctly in the sequence the controller is looking for.My electronics neighbour reconned my problem was with the distance too large between the two, the disc has to rotate faster to get the controller to kick the motor in.
If the disc was on the limit for distance and wasn't 100% parallel, only the magnets at one position would make the sensor switch, so instead of say 8 pulses per rotation, the sensor would only give two, then nothing for another second. The pause would reset the controller to start looking again, but when you pedal quickly, the pause is not long enough to reset it.