In effect, an old author's unfinished work is penetrating (2,5)
I believe the answer is:
de facto
'in effect' is the definition.
('de facto' can be a synonym of 'in effect')
'an old author's unfinished work is penetrating' is the wordplay.
'an old author' becomes 'defoe' (Daniel Defoe).
'unfinished' means to remove the last letter.
'work' becomes 'act' ('act' can be a synonym of 'work'**).
'is penetrating' indicates putting letters inside.
'defoe' with its final letter taken off is 'defo'.
'defo' placed around 'act' is 'DE FACTO'.
(Other definitions for de facto that I've seen before include "actually" , "In fact (Latin)" , "In practice" , "effective" , "In reality, actual" .)