Personally, I think compulsories is rather annoying. I think the kids should have to go through it to get the basics on their skills, but as soon as they have them well enough to complete safely with decent form it's time to move them to the next level, given that they will be able to compete that levels skills safely and decently the following season.
Granted I was an 11-year-old old-level 4, but I competed 4, scored out of 5, competed 6, and nearly scored out of 7 within 3 years. My former coaches goal was always move as many kids to optionals and improve their basics along the way. She also told me that I would be a better optional gymnast than compulsory gymnast back when I was an old-level 4 and she was so right.
Moreover, my coach gave me the option of scoring out of 5 & then competing 6 or competing 5 & then scoring out of 6. I chose the first option because I'd rather be challenged than win. Most other girls I trained with (8/9 year-old level 7s) chose the same thing the previous year. I'm trying to show that most kids would want to be challenged rather than win, up until it comes to levels 8-10 (because at that point the skills are challenging enough themselves).
Basically, given the gymnasts ability to perform the skills is there, I think it should be up to them to choose what to compete.
The only benefit I can see is possible better basics. But better basics at level 3 is not helpful in the long run. It would instead be better to move to 4 or 5 and then repeat to get better basics.
Side note: I believe the hardest level jumps are 8 to 9 and 9 to 10.