Mobs don't seem to be able to pick up items in 1.16. Foxes can't pick up food or items, and dolphins can't pick up and play with items either. I haven't tried to see if this bug affected how the undead pick up armor, but I'm gonna assume that this bug is consistent and that the undead are also affected.
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No it was off. That was the problem. Didn't know mobs couldn't pick up stuff while the rule was turned off, thanks.
This report is actually a duplicate of MC-190865, as it describes the same behaviour.
Is MobGriefing on?