Whole word method?

[Wafflesandcrepes]

My nephew (4) has just started reception and can’t blend yet. His reading homework consists of reading through a booklet, which has one word and associated picture per page. He’s guessing most of the time (says “candle” when the word is “burn” for example.) And some of the words (pencil for example) seem very complicated for a child who is in the very early stages of learning phonics and doesn’t know about the soft c. Could the school be doing a mix of phonics and whole word methods?

You don't mix methods. The whole word, also called global, is based on repetition. The child shouldn't guess the words, the words are read to him a first time, then he reads them again and again.
You see the word "pencil" as complicated because of the number of letter - 6 - compared to the 3 of " cat", however, this is not how it works, it is a lot about familiarity. He will be familiar with pencil, using one on a daily base.
Burn is certainly something that a child is told in their life whenever there is a flame, as in careful, it burns.
Mixing methods would be a failure. Read with him, and create your own cards in the house and place them around for when he visits . One on the fridge, saying "FRIDGE" . One on the kettle, on a book and so on.

you are probably meant to read to him the simple words not have him read to you.
maybe he could turn the pages or you could ask if he recognizes the letters/play with the sound the first letter makes etc.
my trio went through school learning whole language as it was called back in the day, what you describe is not quite how it was taught.

Is this a state school?

Is he at a state school or private? Uk or abroad?

Is this definitely, 'reading' homework? Sounds more like some sort of vocab acquisition task to me as it's completely at odds with the phonic approach which should be being taught in Reception, assuming he's being educated over here. Whether we personally agree with the phonics approach or not, it's part of the curriculum so it is the approach which should be used and, as above, approaches definitely shouldn't be mixed. I'm slightly confused by this and can therefore only assume there's been some confusion and it's not actually a reading task after all.

Its normal early on for dc to guess words. My dc would even sound out the word, only to then guess the wrong word!!!! It would frustrate me big time. Sound out C-A-T......only to the guess BALL! Because the image they saw had a cat with the ball! LOL. But just keep going with it....be relaxed and it will come. Both of mine eventually became GDS for reading. Some dc get it from the start and some take time. They start them so young here.

It is a UK state school and it is definitely a reading task. I’m not concerned at all by his progress. More concerned about the school’s approach to phonics which seems to jump very quickly to words he’s not equipped to decode because they use the soft c for example.

That does sound like the school may be mixing methods. Sadly, despite the clear evidence that synthetic phonics on its own is the best way of teaching children to read and that mixing it with other methods reduces the chances of success, some schools persist with mixed methods.