What would you want?
1. Keep with the current idea that a recruit cold start with an equipment of any level (the changes will decrease the higher the equipment level is) and when they are killed one of those equipment pieces will be available for other solider of the same unit type, who doesn’t have the given equipment piece, to loot and equip it
2. Or Let it be so a unit member would only be able to have equipments that are up to his level (for example a level 3 unit would be able to equip level 1, 2 and 3 equipments but not level 4,5,6 etc equipments). When killed the loot he would drop would depend on level and equipment equipped. (For example a level 4 unit with level 3 helm (if the head equipment was chosen to appear as a loot) would have a 40% change to drop a level 3 helm, 20% change to drop level 4 helm, 20 %change to drop level 2 helm, 10% change to drop a level 1 helm and 10 % change to not drop anything at all.)
Similarly a level 4 unit member that has only equipped a level 1 helm would have 40% to drop a level 1 helm 30% to drop nothing at all, 20% to drop a level 2 helm 5% to drop a level 3 helm and 1% to drop a level 4 helm.
Unit will not drop equipment beyond their level.
For both of those ideas you could still upgrade your units equipments for a price when not in battle.