Can WordPress version update affect SEO?

As long as the upgrade goes smoothly, things should be fine. WordPress is good about keeping your content between upgrades.

I've occasionally seen plugins break during upgrades. This can have some negative consequences. One of my WordPress sites had a calendar plugin that I couldn't get working again after the upgrade. This caused all of its URLs to 404 and fall out of the search engine indexes.

In general, it is a good idea to keep WordPress up to date. Old versions have known security holes and are targeted by hackers. I upgrade WordPress frequently and don't typically worry about SEO when I do so.