I think it's difficult, and to be honest I'm surprised they're giving you the choice.
The first term of Y1 should be transitional anyway, so it shouldn't go straight to a formal, 'everybody sit down and work' situation. Truthfully, it shouldn't ever really be like that in Y1, but that's another matter.
I've had children in my Y1 classes that couldn't recognise or write their name, only recognised a handful of graphemes (2/3 maybe), couldn't recite numbers in order beyond 4, and the option wasn't given to them to repeat YR.
But then I have a child who, at the end of YR, was then just about ready to start that year over. It wasn't an option for them to repeat the year, which was a shame as they would've really benefitted from it the following year, if that makes sense.
I think you need to consider your sons personality and decide what's best for him - I'm assuming the school have things in place to support him (since he isn't at the age related expectation)? I would want to know what they intended to provide for him in Y1 to help catch him up. I would want to know exactly what their reasoning was the have him repeat YR and how they were going to handle it with him/you/his friends, and how they would handle settling in with new children.
I think you know it's unlikely he will meet age related expectations at the end of Y1 (if he's so far behind now), but the school should be doing all they can to catch him up.
(Obviously this is being said with no formal diagnosis or indicators of difficulties in place - that could change things as you'd then be looking at a developmentally appropriate level of provision)