I would, of course, ask this year's teacher for her recommendation. You are so right to recognize that there is more to school than the grades on a report card. By the end of third grade we generally consider the foundation to be established for all future learning. If your child is really struggling, you are wise to ask questions about what is best.
Retention for the purpose of strenghtening academic skills only works if your child learns differently the second time around. If your child, for example, was taught reading with a sight word emphasis and is struggling in this subject, perhaps a more phonetic approach needs to be considered. His learning style needs to be determined and the match-up with the teacher needs to be carefully considered.
You are quite right to recognize that your child's developmental age may not be in sync with his classmates' or his chronological age. That does not mean that he has "failed" at anything and he may just need the gift of time.
It sounds like you believe this year's teacher has been successful with helping your son. Her advice would be very worthwhile. Make an appointment to get her recommendations before making a decision.