When DS was at the end of reception, the class ranged from orange (3 children) to pink (quite a few). A couple of kids not really accessing pink yet. The majority on yellow.
There was a new reception teacher the following year, who did things differently. The entire class save one (who was on yellow) left reception on red or pink (majority red). I have no clue what they were/are thinking. I can't believe none of those children could have done with moving up. It must have been some kind of strategy, a plan with intent.
I suspect they have changed things again this year. I know one child who started reception reading beyond lime, I wonder what they did about that :)
Agree with irvine, the reading book levels really don't mean much. Schools handle the levels very differently, with some giving home easier books, other harder ones, and others again following random 'programmes'. Anyway, children will make reading progress even if they're on 'too low' a level, especially if you support them at home.
The only thing that I'd worry about is that your child gets 'decodable' books closely matched to their phonics ability. I asked the reception teacher to move DS up a level purely because a) he knew the phonics for the next level up, and b) he had exhausted the 'decodable' books on his current level and was being given 'look and say' books instead, and was thus learning bad habits such as guessing based on pictures and initial letter sounds.
I felt sorry for some kids who laboured through scores of 'look and say' books, never moving up a level because they were struggling with the words they hadn't been taught how to read yet. Accordingly losing confidence, starting to feel 'stupid'. And being told off by TAs for 'guessing' - when the books encouraged/necessitated guessing. With the class meanwhile being taught the phonics for the next level books, but these kids not being allowed to move on to the matching decodable books as they were struggling with the non-decodable books on the level below.
(I very very carefully tried to sound out what these kids' parents thought about it all, but they were firmly of the 'I don't get it but I'm sure the teacher knows best, so will leave them to it' persuasion, so I let it be.)