Dang. I would suggest finding a good trainer with a great seat and hands (like others have suggested) to work on this pony. He needs someone REALLY good independently to encourage him to move his neck to stretch down WITHOUT using the hands.
If you stick with him I'll bet he'll be really nice in a year or even less..
Not fun. 7 years later, she is finally coming into a consistent, nice contact and giving me some really, really nice dressage work at 2nd/3rd level. Wouldn't have taken so long, but I spent a while with a trainer who didn't exactly help the issue. Lessons learned: don't use quick fixes (side reins, draw reins, big bits), and don't force the horse's head into a stiff frame through overbending or force. Seems obvious, but it is SO hard on a horse like that to keep your hands still and ride into the hand correctly, and especially for a young rider (which I was at the time) the quicker way can be tempting.
After about 3 years of this, I ditched the "hold the horse together" method, switched to a nathe bit, and committed to the hard, but correct, way of really getting the horse to look for the bit. If Wendy Murdoch clinics in your area, I'd highly recommend a lesson with her. Riding with her was really the turning point in getting this horse to learn to LOVE to stretch and look for the bit. It was accomplished in one lesson and was really amazing. Then, the work of establishing a steady contact up higher (but still with self carriage) began. It is not a quick transformation as the horse has to re-train its muscles as well as gain strength to carry itself correctly and over the back. Dressage scores have gone from 50's gradually down to low 30's over the years.
At least for my mare, lateral work is VERY helpful in getting her loose. SHe holds so much tension through the neck, poll and jaw that loosening her body helps her loosen these areas as well. Turn on the haunches works well for her. I don't go to trot until I've established a good contact at the walk.
Pierre Cousyn is great with contact issues and is in Loxahatchee. He has also worked with eventers. Can't say enough about how much he has helped me and my horse. And he's a super teacher and a really nice guy.
My few suggestions: Nathe bit (or similar flexible rubbery mullen mouth), reward any stretching attempts, and keep the contact light; remember the HORSE initiates the contact, not the rider's hands. The horse must actively seek the bit, carry the bit, reach for contact.
Install a proper half-halt and Whoa from the rider's BODY, not the hands. Deep breath, say "Whoa," sit deep, lift chest, crunch abs, squeeze thighs... this is dressage 101, not "Where is the horse's head?" Horse should be able to go/stop from seat/body, not hands.
Lateral work: spiral in/out on circle, leg yields, tof/toh, etc. Get the hind legs working under the body, that will encourage stretch...and rider must be VERY quick to allow the stretch! When horse does something well, offer stretch-- it becomes a positive reward that the horse will seek.
Flexions in hand: pony probably knows how to tuck chin to chest, but encourage proper chewing, flexing of poll, and *allow stretch* while working the bit from the ground. Don't force the nose in; reward chewing response to bit instead. You may have to work at a walk/turn on forehand/yielding HQ if he gets too stuck at the halt.
Have you tried taking his noseband off, or at least very very loose? If he's allowed to open his mouth to avoid pain, maybe he'll try other options in response to bit pressure rather than curl.
“A clever person solves a problem. A wise person avoids it.”
? Albert Einstein