I agree that on the figures you give you get a pension worth 4.16% of the commuted lump sum, index linked.
USA posters on this forum work on two assumptions: a return on stock market investments which has a safe withdrawal rate of 4% per annum (increasing with inflation). I have seen a table (can't now find it) which suggests that the safe withdrawal rate on UK investments is slightly lower, at 3%. So essentially what your pension deal does is lock in a level of returns that this forum agrees is obtainable and satisfactory, but without any of the concomitant risks of stock market investment and the work of managing an investment portfolio. The annual 3% minimum increase potentially makes it an even better deal, given that the Bank of England inflation targets are below this level, so your pension looks at though it will increase over time by more than inflation. That is good, because it helps to keep the pension in line with general increases in wealth rather than just compensating for decreases in monetary value.
You do of course need to consider how secure your pension scheme is, given that a number of private sector schemes are currently underfunded. If it is a central government or local government scheme, it is as secure as the Bank of England. If it is a private sector scheme, you need to check out the Pension Protection Fund rules, which protect to 90% before you take the pension and 100% after you take it but not with the same inflation protection.
One relevant question on taking the pension rather than the lump sum is inheritance: your pension income dies when you do but an invested lump sum can be passed on to your heirs. That wasn't a consideration for me, but might be for you. You could also consider the tax position: you will pay income tax on pension income but there are various allowances (on dividend income, for instance, or moving the lump sum over to an ISA) which might make investing the lump sum and taking income from those investments more tax advantaged (although tax rules can change, of course, so what is the case now might not be in the future).
Faced with a very similar question to yours I opted for the pension payments, and don't regret that - I think I got a decent deal, and it bumped my pension up to a level that feels very comfortable rather than possibly a bit marginal, for absolutely no work and no worry.